If a child's total investment income exceeds $1,900, how is some of that income taxed?

When a child's total investment income exceeds $1,900, a provision known as the "kiddie tax" comes into effect. This provision is designed to prevent parents from shifting their investment income to their children in order to take advantage of their typically lower tax rates. As a result, if a child's investment income surpasses the $1,900 threshold, that excess income is taxed at the parent's marginal tax rate rather than the child's tax rate.

This approach ensures that parents cannot unduly benefit from lower tax obligations by transferring assets or income to their children, who would generally pay tax at lower rates. It is a mechanism intended to maintain fairness in the tax system and prevent income shifting strategies that could lead to unfair tax advantages. Therefore, the income over the specified amount is taxed at the parent's tax rate, highlighting the importance of understanding how investment income is taxed for minors.