Mariner Wealth Advisors breaks down the "Kiddie Tax" law.
Dec. 27, 2018 Article

Kiddie Tax: What you need to know


“Kiddie tax” is a tax law that was implemented in 1986 in order to prevent parents from taking advantage of lower tax rates by giving their children large “gifts” of stock that would be subject to the child’s lower tax rate on investment income.

When the program was created, a portion of a child’s investment income under a specific threshold was considered tax-free, and another portion was subject to taxes at the child’s tax rate. Any income a child earned above the threshold was to be taxed at the guardian’s rate.

With the passing of the “Tax Cuts and Jobs Act of 2017,” the “kiddie tax” has been simplified. A child’s earned income will continue to be taxed at the child’s individual tax rate. However, for unearned income above the annual threshold, the new provisions will apply ordinary and capital gains rates applicable to trusts and estates. Therefore, unearned income will no longer be affected by the tax situation of the parents.

The chart below explains the tax structure of a child’s unearned income:

2018 Kiddie Tax

This tax applies if:

  1. The child has not reached the age of 19 by the close of the taxable year, or the child is a fulltime student under the age of 24, and either of the child’s parents is alive at such time;
  2. The child does not file a joint return.

For more information or help in navigating the kiddie tax, please contact your wealth advisor.



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