Legal Blog
The Weekly Scenario: What is the “Kiddie Tax”?
Question: What is the “Kiddie Tax”?
Answer: The Kiddie Tax is a tax on the unearned income of a child. It applies to the child’s income from dividends and interest, but not income from wages. The Kiddie Tax applies to the unearned income of a child over a certain small amount (in 2019, the amount is $2,200). Prior to the Tax Cuts and Jobs Act of 2017, if a child had unearned income above the threshold amount, it would be taxed at the higher of the child’s marginal income tax rate or the parent’s marginal rate. In 2018, as a result of the new tax act, the unearned income of the child is taxed at the rates applicable to trusts and estates which for amounts over $12,750 is 37%.
The Kiddie Tax applies in the following circumstances:
- The child has unearned income over $2,200 (in 2019),
- The child has a living parent at the end of the tax year, and
- The child is either under age 18 at the end of the tax year, or is age 18 and provides less than half his support from earned income, or is a full-time student under age 24 and doesn’t provide at least half his own support with earned income.
Comment: If the Kiddie Tax would apply, you may want to consider ways to keep the unearned income from being taxed to the child.
As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or .
ABOUT STEVE SHANE
Steve Shane provides strategic counseling to clients in need of estate administration, charitable giving and business continuity planning while minimizing estate, gift, and generation-skipping transfer tax exposure. He offers legal guidance to clients on asset protection and the proper disposition of assets in accordance with the client’s objectives, while employing tax planning techniques such as the use of irrevocable trusts, life insurance planning, lifetime gifts and charitable trust. He is also experienced with drafting documents for business planning, the incorporation and application for exemption for Private Foundations and the administration of decedents’ estates.
ABOUT OFFIT KURMAN
Offit Kurman is one of the fastest-growing, full-service law firms in the mid-Atlantic region. With over 185 attorneys offering a comprehensive range of services in virtually every legal category, the firm is well positioned to meet the needs of dynamic businesses and the people who own and operate them. Our twelve offices serve individual and corporate clients along the I95 corridor in the Virginia, Washington, DC, Maryland, Delaware, Pennsylvania, New Jersey, and New York City regions. At Offit Kurman, we are our clients’ most trusted legal advisors, professionals who help maximize and protect business value and personal wealth. In every interaction, we consistently maintain our clients’ confidence by remaining focused on furthering their objectives and achieving their goals in an efficient manner. Trust, knowledge, confidence—in a partner, that’s perfect.
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