Unearned income (dividends, rents, interest, etc) of a child under age 14 will be taxed to the child at the parent's highest income tax rate.
The tax on a child's unearned income based on the child's parents' marginal income tax rate. In 2002, a child under age 14 at the end of the tax year who has unearned income in excess of $1,500 is taxed on this excess at the top marginal income tax rate of the parent(s).
An IRS regulation that requires unearned income (i.e., interest, dividends, capital gains, etc.) received by a child under the age of 14 to be taxed at the parent's (usually higher) tax rate.