Understanding the “Kiddie Tax”: A Guide for Parents and Students

Let’s break down what Kiddie Tax is, who it affects, and how to manage it.

What is the Kiddie Tax?

The Kiddie Tax applies to children under the age of 18 and full-time students up to the age of 24. It is designed to address the tax treatment of unearned income, which includes:

• Interest

• Dividends

• Capital gains

• Royalties

• IRA distributions

Importantly, this tax does not apply to earned income such as wages, salaries, tips, or self-employment income.

Income Thresholds and Tax Rates

For the tax year 2023, the Kiddie Tax applies to unearned income that exceeds $2,500. This threshold increases slightly to $2,600 for 2024. Any unearned income above these amounts is taxed at the parents’ marginal tax rate, which can be significantly higher than the child’s rate.

How to File the Kiddie Tax

There are two primary methods to report and pay the Kiddie Tax:

1. Form 8615: Filed on the child’s tax return.

2. Form 8814: Filed on the parents’ tax return.

Each method has its nuances, and the choice may depend on specific circumstances and preferences. Consulting a tax professional can help determine the best approach.

Exceptions to the Kiddie Tax

While the Kiddie Tax rules are broad, there are notable exceptions:

• If the child has no living parents, they are not subject to the Kiddie Tax.

• Married children within the age range who file a joint tax return are exempt.

• Certain trust distributions may also be exempt from this tax.

Need Help? We’re Here for You

Navigating the Kiddie Tax can be complex, but you don’t have to do it alone. If you have questions or need assistance with your taxes, feel free to reach out to us at the Romine Group. Remember, the only certainties in life are death and taxes, and we are here to help you handle the latter with expertise and ease.

Understanding and managing the Kiddie Tax effectively can save you from unexpected tax burdens and ensure compliance with IRS regulations. Stay informed and proactive in your tax planning to make the most of your financial opportunities.

Need help? Call us. 

As always, remember there are only two certainties in life: death and taxes, and we do taxes.