What is the Kiddie Tax?

The Kiddie Tax is a tax specifically levied on the unearned income of children, primarily aimed at addressing situations where parents may transfer income-generating assets to their children. This legislation is designed to prevent families from reducing their overall tax liability by shifting investments to their children, who are often taxed at lower rates.

Under the Kiddie Tax rules, when a child has unearned income above a certain threshold, that income is taxed at the parent's marginal tax rate rather than the child's rate. This means that if a child has significant investment income, it will be subject to higher tax rates, thus equating the tax burden more closely with that of their parents. The Kiddie Tax applies to children under age 19 (or under age 24 for full-time students), ensuring that it primarily affects younger dependents rather than adults.

The other options do not accurately describe the Kiddie Tax. The description of a tax for education savings, a tax for families with multiple children, or a tax on child support payments is not relevant to the specific focus of the Kiddie Tax legislation.