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What Is the Kiddie Tax?

The IRS has established special rules for unearned (investment) income made by children. This is to keep parents from using their children's tax return to reduce or avoid tax on investment income. These rules are commonly known as the "Kiddie Tax" and result in children's unearned income being taxed at the parents' marginal tax rate.

Things to know about the Kiddie Tax:

  • It applies to children under 18 years old as well as full-time students ages 18-24.
  • Earned income is not included in the Kiddie Tax.
  • The Kiddie Tax only applies to children who are required to file a tax return.
  • The Kiddie Tax applies only to the part of a child's unearned income that exceeds $2,100.

If your child has no earned income, and their total unearned income is less than $10,500, you can choose to include it as part of your tax return (using Form 8814) to avoid the hassle of filing a tax return for your child.

Not sure whether your child is subject to the Kiddie Tax? Wondering whether you should file a separate return for your child or include their unearned income on your return? Taxation Solutions, Inc. offers comprehensive answers to tax problems large and small. We understand the tax code inside and out, and we can help you understand nuanced issues like the Kiddie Tax. Feel free to give us a call for tax help in Arlington!