What You Need to Know About Kiddie Tax
Kiddie tax is a tax law that was implemented in 1986 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, the unearned portion of a child’s investment income under a specific threshold, $2,200, was considered tax-free, while the earned 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.
Although the past two years have seen major changes to the “Kiddie Tax,” with the passage of the “Further Consolidated Appropriations Act of 2020,” it has been restored to its original form. This means that a child’s earned income will continue to be taxed at the child’s individual tax rate. However, the tax for unearned income above the $2,200 threshold, will again be taxed at the parents’ tax rate. Importantly, these rules apply retroactively, so it is possible to amend 2018 and 2019 tax returns if resulting in a lower tax.
This tax currently applies if:
- The child has not reached the age of 19 by the close of the taxable year, or the child is a full- time student under the age of 24, and either of the child’s parents is alive at such time;
- The child does not file a joint return.
For more information or help in navigating the kiddie tax, please contact your wealth advisor and tax professional.
Tax Guide: Your resource for year-round tax efficient investing
Develop tax-efficient planning strategies with an advisor that integrate into your overall wealth plan.
“Former kiddie tax rules restored,” journalofaccountancy.com
This article is limited to the dissemination of general information pertaining to Mariner Wealth Advisors’ investment advisory services and general economic market conditions. The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment or tax advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. Any opinions and forecasts contained herein are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information that this opinion and forecast is based upon. You should note that the materials are provided “as is” without any express or implied warranties. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. Additional fees may apply for tax planning and preparation services.
Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training.MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.