Who is subject to the kiddie tax rules when filing taxes in 2024?
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The "kiddie tax" rules are designed to prevent families from shifting investment income to children to take advantage of lower tax rates. For tax year 2024, the kiddie tax applies to certain children who have unearned income above a specified threshold. Here is a comprehensive explanation of who is subject to the kiddie tax rules in 2024, based on the Internal Revenue Code, Treasury Regulations, and IRS guidance:
1. Age and Student Status
A child is subject to the kiddie tax if, at the end of 2024, they meet any of the following conditions:
- Under age 18 at the end of the year.
- Age 18 at the end of the year and did not have earned income that was more than half of their support.
- Full-time student, age 19–23 at the end of the year, and did not have earned income that was more than half of their support.
A full-time student is defined as someone who, for at least five months of the year, was enrolled as a full-time student at a school or took a full-time on-farm training course given by a school or government agency. The child must also be younger than the taxpayer (or the taxpayer’s spouse if filing jointly) unless the child is permanently and totally disabled.
2. Unearned Income Threshold
The kiddie tax applies if the child’s unearned income exceeds $2,600 in 2024. Unearned income generally includes investment income such as interest, dividends, capital gains, rents, royalties, and income from trusts. Earned income (wages, salaries, tips, etc.) is not subject to the kiddie tax.
3. Filing Status and Parental Status
The child must be required to file a tax return for the year (i.e., their income exceeds the standard deduction or other filing thresholds for dependents), and at least one of the child’s parents must be alive at the end of the year. The child must not file a joint return for the year.
4. Support Test
For children who are 18 or full-time students age 19–23, the kiddie tax applies only if the child did not provide more than half of their own support with earned income. Scholarships are not considered support provided by the child for this purpose.
5. Exceptions
The kiddie tax does not apply if:
- Neither parent was alive at the end of the year.
- The child is married and files a joint return.
- The child’s earned income is more than half of their support (for 18-year-olds and full-time students age 19–23).
- The child is not required to file a return.
6. Parental Election
If the child’s only income is from interest and dividends (including capital gain distributions), and the total is less than $13,000 in 2024, parents may elect to report the child’s income on their own return using Form 8814. If this election is not made, and the child meets the above criteria, the child must file their own return and the kiddie tax rules apply.
7. Summary Table
A child is subject to the kiddie tax in 2024 if all of the following are true:
- The child is under age 18 at year-end, or age 18 and did not provide more than half of their own support with earned income, or a full-time student age 19–23 and did not provide more than half of their own support with earned income.
- The child’s unearned income exceeds $2,600.
- The child is required to file a tax return.
- At least one parent was alive at year-end.
- The child does not file a joint return.
8. Additional Notes
- The first $1,300 of unearned income is covered by the standard deduction for dependents; the next $1,300 is taxed at the child’s rate; unearned income above $2,600 is taxed at the parent’s marginal rate.
- The rules apply to both U.S. citizens and resident aliens who meet the above criteria.
In summary, the kiddie tax applies in 2024 to children under 18, 18-year-olds, and full-time students age 19–23 who do not provide more than half their own support with earned income, have unearned income over $2,600, are required to file a return, have at least one living parent, and do not file a joint return.
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