In 2018, your children under the age of 19 or college students under the age of 24 are subject to the Kiddie Tax on net unearned income of more than $2,100. Unearned income includes all income other than wages.
Under the new tax law, for years 2018 -2015, such taxable income is no longer subject to the parents’ tax bracket but is subject to the tax rates usually applicable to estates/ trusts! These are higher than individual rates and look like the following:
Estate and Trust Rates
Income under $2,551- Tax Rate is 0
Income $2,551 and over- Tax Rate is 24%
Income $9,151 and higher- Tax Rate is 35%
Income $12,501 and higher- Tax Rate is 37%
Parents can elect to include their minor child’s gross income on their own returns if their child’s gross income is more than $1,050 but less than $10,500. The election must be made by utilizing Form 8814, Parents’ Election to report Child’s Interest and Dividends.
To do this the child must meet the following criteria:
The child is required to file a tax return and is otherwise subject to kiddie tax
The child’s only income for the year is from interest and dividends including capital gain distributions
Neither the parent nor the child made estimated tax payments for the year in the child’s name and SSN, including any overpayment from the prior year
The child must not be subject to backup withholding
The child has no earned income