how the kiddie tax works
the kiddie tax is imposed on individuals under a certain age whose investment and unearned income is higher than an annually determined threshold it applies to all children aged 18 and under at the end of the tax year as well as children who are dependent full time students between the ages of 19 and 24 2the kiddie tax does not apply to children under 24 years of age who are married and file joint tax returns this rule is designed to prevent parents from exploiting a tax loophole where their children are given large gifts of stock in this case the child would then realize any gains from the investments and would be taxed at a far lower rate compared to the rate the guardians face for their realized stock gains the kiddie tax includes unearned income a child receives interest dividends capital gains rent and royalties any salary or wages the child earns is not subject to the kiddie tax adult children who turn 19 or 25 in the case of dependent full time students by the end of the tax year are not subject to the kiddie tax 2