Background
The United States federal income tax system is progressive, meaning, the higher the income the higher percentage of that income is paid to the government in the form of a tax. The progressivity of the income tax system encourages income redistribution, which is the shifting of income from individuals in high tax brackets to others in lower tax brackets.
Taxpayers, however, will not likely shift the income to just any person, but may be willing to shift income to a close family member or friend. Children are usually in a lower tax bracket than their parents and grandparents, which makes them the likely receiver of the shifted income. The incentive, however, to shift income from the taxpayer to the taxpayer’s child is reduced by §1(g) of the Internal Revenue Code.
Read more about this topic: Kiddie Tax
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