# Difference between revisions of "Kiddie tax"

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*The standard deduction is earned income +$350, but no more than the normal standard deduction of $6300 for a single person, and no less than the $1050 for children with no earned income. | *The standard deduction is earned income +$350, but no more than the normal standard deduction of $6300 for a single person, and no less than the $1050 for children with no earned income. | ||

*This has the effect of the first $350 of unearned income is untaxed | *This has the effect of the first $350 of unearned income is untaxed | ||

− | *The next $ | + | *The next $1750 is taxed at the child's rate |

*Can still realize $2100 of untaxed unearned income, but only $350 of that can be interest and non-QDI (vs $1050 for no job case) | *Can still realize $2100 of untaxed unearned income, but only $350 of that can be interest and non-QDI (vs $1050 for no job case) | ||

## Revision as of 02:50, 18 December 2017

Please expand this article. |

The **kiddie tax** rule can be found in the US tax code^{[1]} which "taxes certain unearned income of a child at the parent’s marginal rate, no matter whether the child can be claimed as a dependent on the parent’s return."^{[2]}

## Contents

## The kiddie tax in general

There are two rules may affect the tax and reporting of the investment income of certain children:^{[3]}

- If the child's interest, dividends and other unearned income total more than $2,000 (indexed for inflation), part of that income may be subject to tax at the parent's tax rate instead of the child's tax rate.
- If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to elect to include that income on the parent's return rather than file a return for the child.

The following characterizes the kiddie tax:

- Very complex
- Applies if child is <24, still a dependent, and has >$2100 in unearned income (limit for 2017 and 2018)
- Anything over $2100 in unearned income is taxed at the parent's rate
- Kiddie tax is calculated on Form 8615 and paid on child's return

## Taxation of children with no Earned Income

If the children have no earned income then:

- The child (if a dependent) gets a Standard Deduction of $1050
- This has the effect of:
- The first $1050 of unearned income is untaxed
- The next $1050 is taxed at the child's rate
- 0% for qualified dividend (QDI) and long term capital gain (LTCG)
- 10% for Interest and non-QDI

## Taxation of children with Earned Income

If the children have earned income then:

- The standard deduction is earned income +$350, but no more than the normal standard deduction of $6300 for a single person, and no less than the $1050 for children with no earned income.
- This has the effect of the first $350 of unearned income is untaxed
- The next $1750 is taxed at the child's rate
- Can still realize $2100 of untaxed unearned income, but only $350 of that can be interest and non-QDI (vs $1050 for no job case)

- Note that by gifting appreciated securities to a child, one can save at least $315 per year per child in capital gains tax (if in the 15% LTCG bracket) and up to $832 per year per child (if in the 39.6% bracket with tax loss carryforwards)

## See also

## References

- ↑ 26 U.S. Code § 1 - Tax imposed | LII / Legal Information Institute, viewed January 24, 2015.
- ↑ Samuel Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials 639 (Thomson West 2007) (2005).
- ↑ Tax Topics - Topic 553 Tax on a Child's Investment Income (Kiddie Tax), viewed January 24, 2015.

## External links

- Kiddie tax, on Wikipedia
- Understanding the Kiddie Tax, from Intuit