What is the Kiddie Tax?
The Kiddie Tax refers to the tax parents pay for their dependent children under the age of 19, when the child is taxed at their parents' tax bracket. The current tax law imposes the "Kiddie Tax" on a dependent child under 19 by the last day of the tax year whose investment income(interest, dividends and capital gains) exceeds $2,000. The tax is computed using the parents' income tax bracket on the amount of income over the $2,000 threshold. For the current year the investment income of children under age 14 will get more of a tax break. The first $1,000 of investment income will be tax free and the next $1,000 will be taxed at the child's tax rate. Amounts in excess of $2,000 will be taxed at the parent's rate.
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