INSIGHTS & IDEAS

New unfavorable kiddie tax rules

 

On May 25, 2007, a new tax law was passed that, among other things, changed the kiddie tax rules for children under the age of 24 who are full-time students.  Commencing in 2008, children between the ages of 19 and 23 who have unearned income in excess of $1,700 (this threshold is subject to inflation) will pay tax at their parents' higher rate unless they have earned income (wages) in excess of 50% of their own support.  Previously, the kiddie tax did not apply to children 18 years of age and over.  This change in tax law may require a re-evaluation of those college savings planning strategies that utilized a child’s lower income tax bracket.  



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