The age requirement for the Kiddie Tax,â€ 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.
â€œUnderstanding how children are taxed is very important when determining how to best save money for their college education,â€ said Andrew Schwartz CPA, founder of FindAGoodCPA.com, 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.