Kiddie Tax Age Raised

Until recently, the kiddie tax kicked-in at 14. The Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Tax Act)raised the age to 19, 24 if a student, under which the unearned income of minors who provide less than half their support is taxed at their parents' tax rate for tax years beginning after May 25, 2007 (2008 for most calendar year taxpayers). Congress decided that it was time to lessen the effectiveness of intra-family transfers of income-producing property, which shift income produced from such property from the parents' high marginal tax rate to the child's generally lower tax bracket, thereby reducing a family's overall income tax liability.

Generally, the kiddie tax applies when a child's income exceeds $1,800 for 2008. For tax years beginning in 2008, the inflation-adjusted amount used to reduce the net unearned income reported on a child's return that is subject to the kiddie tax is $900. For tax years beginning in 2008, the amount of a dependent's standard deduction is the greater of $900, as adjusted for inflation, or the sum of $300 and the dependent's earned income.

For purposes of the kiddie tax, the source of the income-producing property is irrelevant. For example, the property may have been transferred to the child, by gift from the child's parents, grandparents or anyone else, in any type of trust, by gift under the Uniform Gift to Minors Act, by inheritance.