How much income can a dependent earn in 2024 before the parents' tax rate applies?
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To determine how much income a dependent can earn in 2024 before the parents' tax rate applies, it is important to distinguish between earned income (such as wages from a job) and unearned income (such as interest, dividends, or capital gains). The application of the parents' tax rate to a dependent's income is governed by the "kiddie tax" rules under Internal Revenue Code §1(g).
1. Kiddie Tax and the Parental Tax Rate
The "kiddie tax" applies to the unearned income of certain children (including most dependents under age 19, or under 24 if a full-time student). Under these rules, a portion of the child's unearned income is taxed at the parents' marginal tax rate rather than the child's rate.
2024 Thresholds for Kiddie Tax
- For tax year 2024, the threshold for unearned income is $2,500. If a dependent's net unearned income exceeds $2,500, the excess is taxed at the parents' tax rate.
- The standard deduction for dependents is the greater of $1,300 or the sum of $450 plus the dependent's earned income, but not more than the regular standard deduction for a single filer ($14,600 in 2024).
Earned Income
- The kiddie tax does not apply to earned income (such as wages from a job). Earned income is always taxed at the child's own tax rate, regardless of the amount.
2. Summary Table for 2024
3. Example
- If a dependent child has $3,000 in unearned income (e.g., interest), the first $2,500 is taxed at the child's rate, and the remaining $500 is taxed at the parents' rate.
- If the child has $10,000 in earned income (e.g., from a part-time job), all of it is taxed at the child's rate, regardless of the amount.
4. Other Considerations
- The child may be required to file a tax return if their earned income exceeds the standard deduction ($14,600 in 2024), or if their unearned income exceeds $1,300, or if their gross income exceeds the larger of $1,300 or their earned income plus $450.
- The "kiddie tax" does not apply to children who are married and file a joint return, or to those who provide more than half of their own support with earned income.
Conclusion
In 2024, a dependent can have up to $2,500 of unearned income before any of it is taxed at the parents' tax rate. There is no limit on earned income before the parents' rate applies, as earned income is always taxed at the child's own rate.
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