Many higher income taxpayers have long made it a practice to open investment accounts for their children, hoping to take advantage of their lower tax rates. Many years ago, Congress imposed, what is colloquially known as the “kiddie tax” to place strict limits on the amount of investment income that can be taxed at those lower rates.
One of the changes made by the recently enacted Tax Cuts and Jobs Act of 2017 made some significant changes to how the “kiddie tax” is administered, impacting the way adults pass investment income on to their minor children.
The "kiddie tax" is a provision that taxes the unearned income of children under the age of 19 and of full-time students younger than 24 at a special rate. Under both the new law and the old, the first $1,050 of a child's income is tax-free and the next $1,050 is taxed at a rate of 10 percent.