Question: What is the “Kiddie Tax”?
Answer: The Kiddie Tax is a tax on the unearned income of a child. It applies to the child’s income from dividends and interest, but not income from wages. The Kiddie Tax applies to the unearned income of a child over a certain small amount (in 2019, the amount is $2,200). Prior to the Tax Cuts and Jobs Act of 2017, if a child had unearned income above the threshold amount, it would be taxed at the higher of the child’s marginal income tax rate or the parent’s marginal rate. In 2018, as a result of the new tax act, the unearned income of the child is taxed at the rates applicable to trusts and estates which for amounts over $12,750 is 37%.
The Kiddie Tax applies in the following circumstances:
- The child has unearned income over $2,200 (in 2019),
- The child has a living parent at the end of the tax year, and
- The child is either under age 18 at the end of the tax year, or is age 18 and provides less than half his support from earned income, or is a full-time student under age 24 and doesn’t provide at least half his own support with earned income.
Comment: If the Kiddie Tax would apply, you may want to consider ways to keep the unearned income from being taxed to the child.
As always, if you have any questions or would like to learn more, please contact Steve Shane at firstname.lastname@example.org or .
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Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
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