The age requirement for the Kiddie Tax,” rose from 14 to 17 or younger, following the introduction of a new law. The tax is currently placed on children in the United Stateswho earn over $1,700 or more in non-wage income.

The Tax Increase Prevention and Reconciliation Act of 2006 states that children aged 17 or younger who earn more than $1,700 in 2006 in interest, dividends, capital gains, and other non-wage income, will be taxed according to their age group.

“Understanding how children are taxed is very important when determining how to best save money for their college education,” said Andrew Schwartz CPA, founder of, a website relating to specific tax issues.

According to Schwartz, the first $850 of net investment income earned by a child will not be taxed. However, the next $850 is taxed at a rate of either 5 percent or 10 percent, this depends on the type of income earned. Kiddie Tax was first implemented 20 years ago as part of the Tax Reform Act.