Quick Definition

Kiddie Tax refers to a special tax rule imposed on the unearned income of children under certain age thresholds to prevent parents from avoiding taxes by shifting income to their children.

Examples

• 1A parent transfers $10,000 in stocks to their child, who then earns $500 in dividends. This income may be subject to Kiddie Tax.
• 2A child receives $1,200 in interest from a trust fund. If this exceeds the Kiddie Tax threshold, part of it could be taxed at the parent's higher rate.
• 3A teenager has a savings account that generates $300 in interest. Depending on their total unearned income, this might be taxed under Kiddie Tax rules.

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