In 2024, at what income level does a dependent's income get taxed at the parents' tax rate?
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For tax year 2024, the "kiddie tax" rules apply to a dependent child's unearned income (such as interest, dividends, and capital gains) when it exceeds a certain threshold. The portion of a child's net unearned income that exceeds this threshold is taxed at the parents' tax rate.
Threshold for 2024:- The unearned income threshold for the kiddie tax in 2024 is $2,600. This means that if a dependent child's net unearned income exceeds $2,600, the amount over $2,600 is subject to tax at the parents' marginal tax rate, rather than the child's rate.
How the Kiddie Tax Works:1. Who is subject to the kiddie tax? - Generally, the kiddie tax applies to children who are under age 19 at the end of the year, or under age 24 if a full-time student, and who do not file a joint return.2. What income is subject to the kiddie tax? - Only unearned income (such as interest, dividends, capital gains, etc.) is subject to the kiddie tax. Earned income (such as wages) is not.3. How is the tax calculated? - The first $1,300 of unearned income is generally covered by the standard deduction for dependents. - The next $1,300 is taxed at the child's rate. - Any unearned income over $2,600 is taxed at the parents' tax rate.
Example:- If a dependent child has $3,500 of unearned income in 2024: - The first $1,300 is not taxed (standard deduction for dependents). - The next $1,300 ($1,301 to $2,600) is taxed at the child's rate. - The remaining $900 ($3,500 - $2,600) is taxed at the parents' tax rate.
Summary Table:- $0 – $1,300: Not taxed (standard deduction for dependents)- $1,301 – $2,600: Taxed at child's rate- Over $2,600: Taxed at parents' rate (kiddie tax applies)
Conclusion:In 2024, a dependent's unearned income above $2,600 is taxed at the parents' tax rate under the kiddie tax rules.
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