Eligibility
Under §1(g)(2), the kiddie tax applies to a child if either of the following two conditions are true:
(1) the child has not reached age 19 by the end of the taxable year;
(2) the child has not reached age 24 and their earned income is not more than one-half of their support;
The kiddie tax does not apply unless all three of the following conditions are true:
(a) the child is required to file a return for the year;
(b) the child has at least one parent alive at the close of the taxable year; and
(c) the child will not file a joint return for the taxable year.
It is also important to remember that the kiddie tax provision only applies to unearned income. Earned income, defined in §911 (d)(2), is exempt from the kiddie tax provision.
Sec. 1(g)(4)(A) provides the formula for computing a child’s “net unearned income,” which is the child’s unearned income minus either (1) two times the standard deduction allowed to dependents under §63(c)(5)(A) or (2) that deduction plus the itemized deductions directly connected with the production of the unearned income.
Under §1(g)(3)(A), the tax rate applied to the net unearned income is the difference between the parent’s applicable tax rate and the tax rate that would have applied had the child’s unearned income been added to the parent’s income.
It is important to note that Congress has expanded the kiddie tax provision for 2008 and subsequent years. Starting in 2008 the kiddie tax provision will apply to dependents under 19 and dependent full-time students under 24. To qualify, those ages 19 to 23 who are full-time students must have earned income that is less than 50 percent of their support.
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