Question

Describe what the "kiddie tax" is. Do you think this is a fair tax? Do you think it is effective?

Answer 1

The kiddie tax is a tax on a minor unearned income, such as interest, dividends, and capital gains, but not on wages. Policymakers designed the kiddie tax to prevent parents from passing their unearned income to their children to avoid paying higher tax rates.

Yes., I think that this is a fair tax because a portion of a child’s net unearned income could be taxed at the federal income tax rates paid by the child’s parents. This was unfavorable because parents are usually in a much higher tax bracket.

Now "kiddie tax" has removed this problem and provides benefits to taxpayers as children are usually in a lower tax bracket than their parents and grandparents, which makes them the likely receiver of the shifted income.

Yes., I think that this is an effective tax as while calculating the federal income tax bill for a dependent child (or young adult) who is subject to the Kiddie Tax, the child is allowed to subtract his or her standard deduction amount. The essence of this tax is that wealthy families shift income-producing assets to their kids in hopes of a lower rate.

Thanks & all the best...