Why US Government
is Taxing Kids?
- Form INVESTOPEDIA
Kiddie tax is a spe cial US tax law cre ated in 1986 im posed 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 realise any gains from the investments and be taxed at
a far lower rate compared to if the parents had realised 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
realised that some parents would take advantage of the situation by giving
stock gifts to their older, 16-to-18-year-old children.
The US 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).
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