How does the “kiddie tax” work? (T.R., Fairfax, VA)

In 2006, the kiddie tax applies the parent’s tax rate (if higher than the child’s) to an under-age-18 child’s unearned income in excess of $1,700.1

Unearned income is income other than wages, salaries, professional fees, or other amounts received as compensation for personal services.2 Thus, interest, dividends, and capital gains suffer the kiddie tax. The kiddie tax does not apply to the W-2 wages you paid your child. ... Log in to view full article.