What is the Kiddie Tax? We’re not talking about taxes on gambling or kids. We’re talking about a special set of rules for what to do if a child has unearned income (like interest, dividends, or capital gains) over a certain threshold. That threshold is $2,300 for the tax year 2022. The rules are meant to prevent parents from putting all their investments into their children’s name to game the system and pay a lower tax rate.
Remember that children typically don’t have earned income. They don’t have wages or salaries, and so their income is usually lower than a typical parent’s income. So they have to fill out a special form on the child’s return to calculate the tax rate using numbers from the parent’s return. Another way to handle this is that the parents could make an election on their tax return to pull the child’s income onto their return and pay the tax directly.
