The Winners And Losers From The New 'Kiddie Tax'
By: Laura Saunders - September 12, 2018
Parents and grandparents, beware: The latest version of America’s “Kiddie Tax” will raise the cost of giving sharply in some cases.
The Kiddie Tax is a special levy on a child’s “unearned” income above $2,100. It typically falls on investment income such as dividends, interest and capital gains, and it doesn’t apply to a youngster’s earned income from mowing lawns or designing websites.
Congress passed the Kiddie Tax in 1986 to prevent wealthy or affluent taxpayers from taking advantage of their children’s lower tax rates by shifting income-producing assets to them. Originally the provision was for children under age 14, but lawmakers expanded it over time.
Today, the Kiddie Tax applies to nearly all children under 18 and many who are under 24, if they are full-time students and aren’t self-supporting.
For 2015, about 343,000 children paid a total of $1 billion in Kiddie Tax, according to the latest Internal Revenue Service data.
Last year’s overhaul made an important change to the rates for this tax. Beginning this year and continuing through 2025, when the law sunsets, a child’s unearned taxable income will be subject to trust tax rates. Under prior law, this income was usually taxed at the parents’ rate.
Article Source: Wall Street Journal
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.