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Kiddie Tax

The informal name of a provision in the tax code that applies to a child's unearned income (such as interest, capital gains, and dividends). This tax applies to children under the age of 19 (for full-time students, under the age of 24).

Under the kiddie tax, the following provisions apply in 2022. The first $1,150 of a dependent child's unearned income (dividends, interest, and capital gains) is tax-free, i.e. offset by the child's standard deduction. The second $1,150 of unearned income is taxed at the child's rate (the 0% capital gains rate that applies to people in the 10% income tax bracket). Any amount over $2,300 is taxed at the parents' top marginal tax rate.

The kiddie tax affects strategies for gifting company stock (see a related FAQ). For more on the kiddie tax, see an article at NOLO.com and a blog commentary at Forbes.com.

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