IRS Extends New Low Tax Rates to Dependents
During the tax rebate program this past summer, dependents did not qualify for the rebate. However, the new tax forms that have been recently released by the IRS tell a slightly different story.
The statutory language of the tax law indicated that dependents would not be eligible to share in the new low 10% tax rate on the first $6,000 of taxable income ($12,000 of taxable income for married couples) until 2002. However, the chairmen of the House Ways & Means Committee and the Senate Finance Committee have prepared a letter in which they explain that it was never their intent to deny the lower rates to dependents in 2001.
Although it remains true that dependents were not eligible to share in the summer rebate windfall, the new 10% rate on the lowest marginal bracket of taxable income is available to dependents on 2001 tax returns.
The IRS has prepared a worksheet, Tax Computation Worksheet for Certain Dependents, which accompanies the instructions to the 2001 tax returns. Taxpayers should use this worksheet to compute tax and take advantage of the lower 10% rate. The worksheet remains with the taxpayers tax records and does not get attached to the tax return.
Dependents under age 14 who are taxed at their parents' tax rate on investment income over $1,500 will realize a very small benefit as a result of the lower tax rate.