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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, in 2021 the first $1,100 of a dependent child's unearned income is tax-free (offset by the child's standard deduction), the second $1,100 of unearned income is taxed at the child's tax rate, and any amount over $2,200 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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