Because of the expansion of the kiddie tax
, which now applies to children as old as 23, practitioners need to know to whom it applies and how it works.
The kiddie tax
is expanded to apply to children who are 18 years old or who are full-time students over age 18, but under age 24.
As originally enacted in 1986, the Kiddie Tax
was imposed on the investment income of children under age 14 to discourage the shifting of income producing assets of higher tax bracket parents to their children where the income would be subject to a lower rate.
It should also be noted that the Kiddie tax
applies regardless of the dependency status of the child.
In 2006 and later, because of the new law, the kiddie tax
applies to children under 18.
Education IRAs, child care credits, and shifting income to children and kiddie tax
planning come to mind.
for all but the kiddie tax
, moving expenses, tax rate schedule, and state and local taxes), educators tended to rank an item as being more complex than did their counterparts in practice.
That's why it's a good idea to reexamine income-shifting as a valuable college-funding technique, even though the kiddie tax
rules are still around.
One reason the kiddie tax
originally applied only to children age 14 and younger was to minimize complexity.
To the extent that trust income is taxed to a trust beneficiary under the age of 18, or if the child is age 18 or a full-time student age 19-23 who has earned income equal to less than 50% of his or her support, the kiddie tax
rules will apply.
special needs kiddie tax
($13 billion): Imposes cap on FSAs of $2500 (now unlimited).
In 2008, the kiddie tax
will be further expanded to children who qualify as dependents because they are under the age of 19, or under 24 and a fulltime student, if their earned income doesn't exceed one-half of the amount needed for their support.