Kiddie Tax
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To prevent parents from using their children’s tax return to avoid taxes on investment income, Congress established what is now referred to as the kiddie tax on the unearned income of children. This applies to children under the age of 18 and full-time students over age 18 and under the age of 24 for 2008 and future years. Under the kiddie tax rules, a child’s unearned income in excess of $1,800 for 2008 is taxed at the parent’s tax rate. The child’s earned income continues to be taxed at the child’s rate.
