Kids subject to the Kiddie Tax pay tax at their parents’ highest income tax rate. The goal is to prevent parents from shifting income producing assets to their kids to save income tax (hey, why make saving for college easy), but it makes family tax planning more difficult. Now, a child over age 18, but under age 24, who is a full time student, is caught in the Kiddie Tax snare unless their earned income exceeds ½ of the amount of their support. The Kiddie Tax won’t apply to the first $1,700 of unearned income (inflation adjusted). Unearned income includes dividends, rents, interests, etc. The Small Business and Work Opportunity Tax Act of 2007.
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