Kiddie Tax

Understand the Kiddie Tax rules that apply to the unearned income of children, which is taxed at the parents’ tax rate. This guide explains the criteria for the Kiddie Tax, including the age of the child, types of income affected, and how to calculate the tax. It is essential for parents and guardians managing investment income on behalf of their children to avoid unintended tax consequences.

Highlights:

• Taxable Unearned Income: Applies to children under 18, or under 24 if a full-time student, with unearned income over $2,600.

• Types of Income: Includes interest, dividends, capital gains, and income from gifts or trusts.

• Tax Calculation: First $1,300 of unearned income is tax-free; the next $1,300 is taxed at the child’s rate, and any amount over $2,600 is taxed at the parent’s rate.

• Filing Requirements: Use Form 8615 for the child’s tax return or Form 8814 to include the child’s income on the parent’s tax return.

• Reasons for Separate Filing: Explains when filing a separate return may be beneficial, such as to avoid reducing parental credits or increasing tax liability.