Exhibit 1 If the parents are: Kiddie tax
applied to each child is determined by: Married filing jointly Using parents' taxable income Married filing separately or not Parent with higher taxable married and living together the income entire year Married not living together Using the custodial parent's taxable income Custodial parent with stepparent Treating stepparent as the other parent
Therefore, this income-shifting strategy might have its greatest payoff after children leave school or reach age 24, when the kiddie tax
Under the kiddie tax
rules for 2012, the investment income of a child (1) who is under the age of 18, regardless of the amount of the child's earned income, or (2) whose earned income does not exceed one-half of the child's support and who is either age 18, or age 19-23 and a fulltime student, is taxed at the parents' marginal tax rate to the extent such income exceeds $1,900 (Sec.
The kiddie tax
was instituted to discourage wealthy parents from shifting their investment income to their children in lower tax brackets.
This may spread out income, possibly avoid (or lessen) the kiddie tax
and eliminate assets and income from financial aid consideration.
Secondly, the earnings currently are taxed at the parents marginal tax rate under the kiddie tax
Children under age 18 are subject to the kiddie tax
Pursuant to the Small Business and Work Opportunity Tax Act of 2007, however, the kiddie tax
applies to children under age 19 or full-time students under age 24 starting in 2008 (see also IRS Publication 929, Tax Rules for Children and Dependents, and 17, Your Federal Income Tax--Part One 1.
In addition to the taxpayer's business and investment items, a number of items found on individual returns were included: the kiddie tax
, the sale of a principal residence, the tax on excess individual retirement account contributions, rental income from a vacation home and the nanny tax.