The “kiddie tax” catches many parents by surprise. It can affect children under 18, dependents who are age 18 at year end and full-time students ages 19 to 23 who don’t provide more than half of their own support. When the kiddie tax applies, it causes the young person’s unearned income (such as interest, dividends and capital gains) above annual thresholds to be taxed at the parents’ higher rate. Earned income isn’t subject to it. Before transferring investment assets to a child or triggering gains in a child’s taxable account, consider the potential kiddie tax impact. Contact us for help planning for your family’s situation.
