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Kiddie Tax FAQ
1. What is the Kiddie
Tax?
2. What changed in
2006?
If you have any other questions, please
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1. What is the Kiddie
Tax?
For years prior to 2006, the investment income of children
under the age of 14 above a standard deduction amount ($800
for 2005) was taxed at the parents’ highest marginal tax
rate. This could be avoided if the parent reported the
child’s investment income on his/her tax return where it
would still be taxed at the highest marginal rate of the
parent. This is called the “kiddie tax”.
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2. What changed in 2006?
The law changed in 2006. For any child who hasn’t reached
his/her 18th birthday by December 31, and who
isn’t married and filing a joint return, any unearned income
above $1,700 is taxed at the parents’ marginal tax rate
beginning in 2006. For 2006, the first $850 of investment
income is not taxed; the next $850 is taxed at 10%; then the
parents’ rate kicks in. The ability of the parent to report
the child’s income on his/her return remains.
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