Children under 24 with investment income greater than $2,100 may be subject to tax based on their parents' income. This does not apply to children who are married and file a joint tax return with their spouse.
The kiddie tax rules also apply where a child:
- turns 18 or is a full-time student under age 24 before the close of the tax year
- earned income for the year doesn't exceed one-half of his support (age 18 or a full-time student under age 24 only)
- has more than $2,100 of unearned income
- has at least one living parent at the end of the tax year
- doesn't file a joint return
For tax years 2008 and later, the kiddie tax applies to a child under 18 even if the child's earned income exceeds half of his support.
Parents who elect to report a child's unearned income on their return may be subject to the Net Investment Income Tax because the child's income must be included in the parent's modified AGI.
For 2018, the Kiddie tax will no longer be based on the parent's tax return, it will be based on Estate tax rates, which are different than individual rates. The tax your child is subject to pay in 2018 may be much different from 2017. We encourage you to contact us for tax planning so that you won't be surprised when filling out your 2018 returns next year.