The “Kiddie” Tax

What is it?

It’s a tax on a child’s unearned income. It was originally created to deter parents from shifting their investment assets to their kids, for the purpose of avoiding or reducing the parents’ own taxes.

For children under age 18, the most common types of unearned income include things like income from a trust, capital gains, dividends and interest. Here are the basics:

– Assuming the child does not have any earned income, the first $1,050 of unearned income by a child is not subject to taxation.
– The next $1,050 of unearned income will be taxed at the child’s individual tax rate (which is likely 0%…or a negligible rate for most children).
– Any unearned income in excess of $2,100 will be subject to the parent’s income tax rate.

kiddie tax

Source: www.irs.gov

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