clarification on Kiddie Tax wiki

[aha]

This is the link.
https://www.bogleheads.org/wiki/Kiddie_tax

In the section Taxation of children with no earned income,
The next $1,100 is taxed at the child's rate
0% for qualified dividend (QDI) and long term capital gain (LTCG)
10% for Interest and non-QDI

For under $2200, is the child's rate 0%? I can't find mentioning of non-QDI on other web sites about kiddie tax. Is this updated info? I'm talking about tax year 2021 forward.

Also, does the child need to file tax even when it's free? Is he going to get a 1099-B and 1099-DIV?

[mogg]

The wiki is accurate. Hopefully, SpiritRider will chime in.

Examples for 2021:
2,200 in long term capital gains: 0 tax
2,200 in earnings: you pay tax
2,200 in short term capital gains: you pay tax

You file if you earned income from employment, or if you sold investments. If you only receive dividends/capital gains distributions from mutual funds, the no need to file if you don't owe.

[Katietsu]

This is the link.
https://www.bogleheads.org/wiki/Kiddie_tax

In the section Taxation of children with no earned income,
The next $1,100 is taxed at the child's rate
0% for qualified dividend (QDI) and long term capital gain (LTCG)
10% for Interest and non-QDI

For under $2200, is the child's rate 0%? I can't find mentioning of non-QDI on other web sites about kiddie tax. Is this updated info? I'm talking about tax year 2021 forward.

Also, does the child need to file tax even when it's free? Is he going to get a 1099-B and 1099-DIV?

Yes, that looks up to date for 2020 anyway. I am not aware of any changes for 2021.

And I do not know if I can explain it any better than your reference but I will try. A child with no earned income has a standard deduction of $1100. So, if they have $1100 of any kind of unearned income, their taxable income is zero, $1100-$1100=$0. The first $1100 of taxable income, which actually the second $1100 of AGI, is taxed at the child rate. In other words there is no special tax but just the regular rate for a taxpayer at that income level. So anybody of any age who has $1100 of taxable income will be in the 10% tax bracket for ordinary income but the 0% tax bracket for cap gains & qualified dividends. For example, assume $1700 in interest plus $500 in cap gains. Taxable income will be $600 interest plus $500 cap gains or $60. If the kid has more income, then the kiddie tax part kicks in. That additional income will be taxed at the same rate as if was owned by the parent(s). The point is to prevent parents from avoiding taxes by shifting ownership to the kid.

I do not know what you may have seen on another site. Non-QDI is always taxed as ordinary income that is not earned income, the same as interest. That is how it is treated here too.

The kid is required to file a return if income is over $1100 even if they owe no tax. And yes, the kid will get a 1099-DIV and 1099-B if applicable.

[aha]

So basically the child is treated like a regular tax payer but with different deductions and tax brackets.

[Katietsu]

So basically the child is treated like a regular tax payer but with different deductions and tax brackets.

-The child is a regular tax payer and fills out a regular tax return if required.
-If the child is a dependent, then the child follows the standard deduction rules for a dependent. This would be true regardless of the age of the dependent. A 60 year old being supported by another has the same standard deduction as a 3 year old being supported by another. Similarly, a self supporting 3 year old would get the full standard deduction that all self supporting adults get. It is just that there are not very many self supporting 3 year olds.
-The child’s tax brackets are the same as anyone else’s, sort of. What happens though, is that unearned income for a child subject to the kiddie tax, has, well, the kiddie tax, added. As discussed previously, this has the effect of increasing the tax rate applied to unearned income, if the parents are in a higher tax bracket.

The original reference simplified the explanation to the most common circumstances. There are a lot of possible variations for which one should read the full IRS instructions.

[aha]

That makes sense. Is it the same for state tax also? CA in specific.

[grabiner]

Edit: CA has a state kiddie tax; thanks CAsage. This will be updated on the wiki.

That makes sense. Is it the same for state tax also? CA in specific.

I don't know of any state with a kiddie tax. The kiddie tax is not a source of additional income; rather, it is a different tax rate on the same income, just as the capital-gains tax is. States have their own rules for determining what type of income is taxed at what rate, so unless a state specifically creates a kiddie tax, the child's income would be subject to state tax at the regular state tax rate.

[Triple digit golfer]

Let's say I have an UTMA for my child with a cost basis of $3,000, purchased 366 days ago, and market value of $4,000. Can I sell, buy a different fund, and not pay any taxes on the $1,000?

What about a mix of ST and LT gains?

[CAsage]

You should probably carefully review CA FTB Form 3800. This clearly taxes the parent income for kiddie income. I have not yet worked through it, but it seems to be relevant. (taxpayer, not a pro)

[aha]

Can't find 2020 form 3800. The latest is 2019. Is the form not out yet?

[CAsage]

Probably not. I know my Taxcut software is expecting State and Federal 2020 updates, rumored to be released Jan 20. Since the kiddie tax federal rules have changed, there's probably some delay overall. And the IRS won't be accepting returns until 2/12.... Yup, gotta wait. But now you know where to look.