Kiddie Tax

Kiddie Tax
A special tax law created in 1986 imposed on individuals under 17 years old whose earned income is more than an annually determined threshold. Any extra income earned above of the threshold is taxed at the guardian's rate.

This law is designed to prevent parents from exploiting a tax loophole where their children are given large "gifts" of stock. The child would then realize any gains from the investments and be taxed at a far lower rate compared to if the parents had realized the stock's gains.

Originally, the tax only covered children under 14 years of age as they cannot legally work and therefore any income was usually the results of dividends or interest from bonds. However, the tax authorities realized that some parents would take advantage of the situation by giving stock gifts to their older, 16-to-18-year-old children.

As of May 2007, the government is seeking to tighten the kiddie tax to cover individuals under the age of 18 (or under the age of 24 if they are full time students). However, there are some exceptions provided for individuals that work paid jobs.


Investment dictionary. . 2012.

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  • Kiddie Tax — The kiddie tax rule exists in the United States of America and can be found in [http://www.law.cornell.edu/uscode/html/uscode26/usc sec 26 00000001 000 .html Internal Revenue Code § 1(g)] , which “taxes certain unearned income of a child at the… …   Wikipedia

  • kiddie tax — A tax imposed on unearned income (in excess of a minimal amount) of a child under the age of 14. Such income is taxed at the parents highest rate. The Tax Reform Act of 1986 instituted the kiddie tax in an effort to stop the shifting of income… …   Black's law dictionary

  • kiddie tax — A tax imposed on unearned income (in excess of a minimal amount) of a child under the age of 14. Such income is taxed at the parents highest rate. The Tax Reform Act of 1986 instituted the kiddie tax in an effort to stop the shifting of income… …   Black's law dictionary

  • kiddie tax — Tax owed for the investment income of children if the amount is more than $1,400. Bloomberg Financial Dictionary …   Financial and business terms

  • kiddie tax — …   Useful english dictionary

  • Tax Increase Prevention and Reconciliation Act of 2005 - TIPRA — A tax related act signed by President George W. Bush in May 2006 that contains revisions to pre existing tax laws. Revisions include topics concerning investor related tax breaks, business provisions, individual retirement accounts, kiddie tax… …   Investment dictionary

  • Kiddie — This most interesting surname is a Scottish name, and is a patronymic form of the Gaelic name MacAddie , which itself comes from the Hebrew personal name Adam , borne, according to Genesis, by the first man, and often said to derive from the… …   Surnames reference

  • Marriage penalty — Part of a series on Taxation Taxation in the United States …   Wikipedia

  • income — The return in money from one s business, labor, or capital invested; gains, profits, salary, wages, etc. The gain derived from capital, from labor or effort, or both combined, including profit or gain through sale or conversion of capital. Income …   Black's law dictionary

  • income — The return in money from one s business, labor, or capital invested; gains, profits, salary, wages, etc. The gain derived from capital, from labor or effort, or both combined, including profit or gain through sale or conversion of capital. Income …   Black's law dictionary

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