Understanding Kiddie Tax

Dec 8, 2022

I often hear adults saying that they move their investments or their assets into their children’s names to minimize their income taxes. This is an old ploy that the IRS wised up to many years ago and so if your child (including a student up to 23 years old), has unearned income, being investment type income, of more than $2,200 THEN this income is taxed at the parents tax rate (if it is higher than the childs tax rate). This is Kiddie Tax.

A Form 815 is filed with the IRS to declare a childs unearned income that exceeds $2,200 or the income can simply be included in the parents income tax return Form 1040 but including Form 8814. This form alerts the IRS that a child interest or dividends are included in the parents tax return.

So as you can see, this gets complicated. Its not quite as simple as moving investments into your childs name. And we have not even talked about earned income. My teenager works on the weekends and earns an income. Is that subject to Kiddie Tax? No, earned income is treated differently.

If you ARE interested in learning about effective tax strategies, I highly recommend you follow the guidance of a qualified tax professional. Reach out to me and I can gladly refer you ro experts who specialize in taxes and investments.

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