* Scholarships and Pell Grant income are considered unearned income that may be subject to the kiddie tax
. Taxable income attributable to the unearned income of a child will be subject to the tax rates applicable to estates and trusts, at both ordinary and capital gains rates.
Depending on the age of the children and their school status, the so-called "kiddie tax
" rules might come into play.
(Children under First $950 not taxed; $950 to $1,900 at 19) child's rate; over $1,900 at parents' rate.
This section of the income tax concepts chapter will briefly explain the current status of the federal income tax rate structure and the workings of what is known as the "kiddie tax
For individuals, the act provides lower tax rates on long-term capital gains and qualified dividends; AMT relief; an increase of the kiddie tax
age to children under 18; and the removal of the AGI ceiling after 2009 for regular IRA to Roth IRA conversions.
For children under the age of 14, "kiddie tax
" may be a problem.
The so-called "kiddie tax
" has reduced, but not eliminated, the advantages of this strategy.
The income tax rules covering unearned income of young children, also called the "kiddie tax
," require a child under the age of 14 to be taxed at the parents' highest marginal tax rate for any investment income (such as interest and dividends) over $ 1,000.
Senators Tim Scott (R-SC) and Maggie Hassan (D-NH) introduced a bipartisan fix to the Kiddie Tax
to ensure that 1.3 million undergraduate and 15,000 graduate students scholarships and grant aid are being taxed at a lower rate.
Income shifting, for example, will not work well for a child who is subject to the kiddie tax
because such income is effectively taxed to the child at the parent's marginal rate.
The "kiddie tax
" rules, under which dependent children's unearned income is taxed at the parents' higher tax rate, have long applied to unearned income in excess of an amount indexed to inflation ($1,050 for 2016).