Kiddie Tax Flashcards
(22 cards)
What are the age requirements for the Kiddie Tax to apply?
Applies to dependent children under 19, or under 24 if a full-time student, provided they do not have earned income exceeding half their support
What is the purpose of the Kiddie Tax?
To prevent parents from shifting investment income to their children to take advantage of lower tax rates
What is the support test for full-time students?
The child must not have earned income exceeding half of their support, excluding scholarships
Does the Kiddie Tax apply if neither parent is alive at year-end?
No, at least one parent must be alive at the end of the year
Does the Kiddie Tax apply if the child files a joint return?
No, the child must not file a joint return for the year
Does the Kiddie Tax apply if the child is not a dependent?
No, only dependent children are subject to the Kiddie Tax
What types of income are subject to the Kiddie Tax?
Only unearned income (interest, dividends, capital gains, rents, royalties, taxable scholarships, pensions, annuities)
How is earned income treated under the Kiddie Tax?
Earned income (wages, self-employment) is always taxed at the child’s rate and is not subject to the Kiddie Tax
How do you calculate the standard deduction for a dependent child in 2025?
The greater of $1,350 or earned income plus $450 (not to exceed the single filer standard deduction)
In what order is the standard deduction applied in mixed income scenarios?
Apply to earned income first, then any remainder to unearned income.
What are the Kiddie Tax tiers for unearned income in 2025?
First $1,350: tax-free (standard deduction)
Next $1,350: taxed at the child’s rate
Amount above $2,700: taxed at the parents’ marginal tax rate
What is the unearned income threshold for the Kiddie Tax in 2025?
$2,700
What are the steps to calculate the Kiddie Tax for 2025?
Add up the child’s earned and unearned income.
Subtract the standard deduction (greater of $1,350 or earned income + $450).
Tax earned income at the child’s rate.
Apply Kiddie Tax tiers to unearned income above $2,700
Example: A 16-year-old has $5,000 unearned income in 2025. How is it taxed?
First $1,350: tax-free
Next $1,350: taxed at child’s rate (e.g., 10% → $135)
Remaining $2,300 ($5,000 – $2,700): taxed at parents’ rate (e.g., 32% → $736)
Total tax: $135 + $736 = $871
Example: Child has $5,000 earned income only in 2025. How is it taxed?
Standard deduction: $5,450
Taxable earned income: $0
Tax due: $0
Child has $5,000 earned + $2,800 unearned income in 2025. How is it taxed?
Standard deduction: $5,450 (applied to earned income first)
Taxable earned income: $0
Remaining $450 deduction applied to unearned income: $2,350 taxable
$1,350 at 0%, $1,350 at child’s rate (10%), $1,000 at parents’ rate (e.g., 24%)
When must a child file IRS Form 8615 for the Kiddie Tax?
If the child’s unearned income exceeds $2,700 in 2025
What is the alternative to filing a separate return for the child?
If the child’s gross income is less than $13,500 in 2025, parents may elect to report the child’s income on their own return using IRS Form 8814.
What Kiddie Tax amounts should you memorize for 2025?
$1,350 standard deduction, $2,700 unearned income threshold
What is the most common Kiddie Tax calculation pitfall?
Incorrectly allocating the standard deduction-always apply to earned income first
What are the three most important Kiddie Tax rules for the CFP exam in 2025?
Calculate the standard deduction correctly ($1,350 or earned income + $450).
Allocate the deduction to earned income first.
Apply Kiddie Tax tiers to unearned income, using the parents’ tax rate above $2,700.
