Skip to content 
Understanding the Kiddie Tax
Welcome to Brightside Tax Relief, your trusted partner in navigating the diverse and often intricate sphere of taxation in the United States. In our quest to continue adding value to you as you grapple with various tax-related issues, we will discuss the Kiddie Tax in this article.
The Kiddie Tax is a unique provision in the U.S tax code. It applies to unearned income for individuals under 19 years old and full-time students under the age of 24. Initially, this tax was introduced to prevent high-income parents from shifting their investment income to their children, who usually fall in lower tax brackets. Over the years, there have been changes to this tax provision that has significantly impacted how children’s unearned income is taxed.
Significant Changes in Kiddie Tax Regulations
In 2017, the Tax Cuts and Jobs Act (TCJA) brought about significant changes to the Kiddie Tax, linking the unearned income of children to the tax rates for estates and trusts. However, the SECURE Act of 2019 sought to amend this by returning the Kiddie Tax to pre-2017 laws, pegging children’s unearned income to their parents’ marginal tax rates starting in 2020. However, taxpayers could op to apply this retroactively to 2018 and 2019.
Here are some crucial points from these changes:
– The Kiddie Tax now applies to a child’s net unearned income exceeding $2,200.
– The parents’ marginal tax rate determines the level of taxation on the child’s unearned income.
– The SECURE Act allows for amendments to 2018 and 2019 Kiddie tax filed under TCJA.
Who Does The Kiddie Tax Apply To?
The Kiddie Tax applies to children who meet the following criteria:
– Are under 19 years old or under 24 years old if a full-time student.
– Their unearned income, such as interest, dividends, or capital gains, exceeds $2,200.
– They do not file a joint return for the year.
– Over half of their support is provided by their parents.
Notably, not all income for a child is classified as unearned income. For instance, money earned from babysitting or a part-time job is considered earned income and won’t be subject to the Kiddie tax.
Tax Planning Strategies for the Kiddie Tax
Given the potential impact of the Kiddie tax, it’s crucial to be strategic when planning your taxes. CPA’s and tax experts suggest several strategies that may help manage this impact:
– Invest in growth stocks, which have low dividends but high capital appreciation potential.
– Place investments that generate income into parents’ names rather than children’s if parents are in low-income tax brackets.
– Utilize education-related tax breaks where applicable to decrease taxable income.
Notably, these are general strategies, and parents should seek personalized tax advice to fit their unique financial situation.
Kiddie Tax and IRS Form 8615
For the practical application of the Kiddie tax, taxpayers need to familiarize themselves with IRS Form 8615. The form is used to calculate a child’s tax on unearned income while considering the total tax liability for Kiddie Tax purposes. To learn more about Form 8615 and its detailed filing instructions, please visit the IRS Publication 929.
Seeking Professional Support
Navigating the intricacies of the U.S. tax code can be challenging without experienced assistance—especially when decoding provisions like the Kiddie Tax. Brightside Tax Relief exists to provide indispensable support for taxpayers across the United States. We are dedicated to addressing your tax-related questions, providing expert advice, and managing your tax planning and preparation process—servicing virtually every corner of the nation.
Allow us to guide you through the complexities of the Kiddie Tax and help maximize your benefits while staying within the law’s confines. Vertical integration allows us to offer a one-stop solution for all tax relief related concerns, ensuring that our clients’ best interests are always at the forefront.
A Brightside Glimpse Into The Future
Understanding the Kiddie Tax helps illuminate the financial planning process and propels us forward with the knowledge and strategic planning blueprint necessary to negotiate taxpayer relief. At Brightside Tax Relief, we are committed to leveraging our expertise to deliver on our clients’ needs and remain at the forefront of providing indispensable service across all tax relief related matters.
In conclusion, tax planning and compliance can be a challenging task, but with the right support, it doesn’t need to be. Brightside Tax Relief is always here to guide you through every step of the process—from understanding complicated tax provisions like the Kiddie Tax to strategizing tax planning. Stay tuned for more insights and updates to help keep you ahead in the ever-evolving world of U.S. taxation. Brightside Tax Relief is your partner in this journey towards tax compliance, clarity, and relief.
