Kiddie Tax
Categories: Tax
Back in olden times (like...prior to 1986), financially creative parents used to transfer assets, like stock and real estate, into their kids’ names to avoid paying heavy taxes on them. But then, in ’86, the IRS said, “Not so fast, parents,” and instituted the Kiddie Tax.
The Kiddie Tax has changed over time, but at its core, it’s a tax levied on the unearned income of dependents under 19 years old and full-time student dependents aged 19 to 23. So in addition to stock and real estate, it also includes stuff like mutual funds, bonds, and interest on savings. Basically, any money that the dependent in question earns that he or she didn’t work for is subject to the Kiddie Tax. It was designed to prevent parents from using their offspring to duck taxes, and how much tax the kiddo has to pay depends on how much money they’re making on those assets.