KIDDIE TAX

A special tax owed for the investment income of a child under the age of 18 who earns more than $1,400 every year. Any income earned above a specified amount is taxed at the guardian’s tax rate. The kiddie tax was created in 1986 to prevent parents from giving large stock "gifts" as their way of shifting income to their children in order to avoid taxes.

Before, it covers only children 14 years old and below as they cannot legally work. A child’s income usually comes from dividends or interest from bonds. But the tax authorities realized some parents took advantage of the said tax ruling by giving it to older children (16-18 years old).

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