Tax		Forms

Introduction to the Kiddie Tax

The "kiddie tax" is designed to put the brakes on high-income households funneling unearned income through the kids to reduce their overall taxes.

In previous years, the tax impacted mainly children ages 14 to 18. The first $850 of unearned income in the child's name is tax-free. Every dollar after the first $850 would then be taxed at roughly 15 percent.

The kiddie tax only applies to unearned income, not income earned by the child through part-time or full-time employment. Unearned income can include stock and mutual fund dividends, interest payments, etc.

For 2006, the gloves are coming off. The new law raises the age to 18 years old, and places new limits on how much can be taxed at the lower rate. The first $850 is still tax-free, and the next $850 is taxed at the preferable 15 percent. However, any amounts over that then get dinged at the parents' income tax rate.

Download IRS Form 8615 for more information on the Kiddie Tax.

All information is believed accurate at time of transmission, and no tax advice is implied. Always consult your tax professional if you have questions.

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