The Tax Reform Act of 1986 created the kiddie tax as a way to prevent parents from shifting investment income to children in order to cut the overall tax bill for the family. Over the years, the kiddie tax has undergone some changes, most notably in the age to which it applies. The Tax Cuts and Jobs Act of 2017 (TCJA) dramatically changed the way in which the tax is computed.
Overview
The kiddie tax is not a separate tax, but rather a method of computing tax on a child’s unearned income over a threshold amount (Code §1(g)). The source of the unearned income (e.g., as a gift from a parent or grandparent or as an investment of a child’s earned income) is irrelevant.
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