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The tax applies to dependent children under the age of 18 at the end of the tax year (or full-time students younger than 24) and works like this: The first $1,250 of unearned income is covered by the kiddie taxs standard deduction, so it isnt taxed. The next $1,250 is taxed at the childs marginal tax rate.
Under IRS rules, for 2023, the first $1,250 of a childs unearned income (dividends, interest and capital gains) is earned tax-free, and the next $1,250 is taxed at the childs rate. Anything over $2,500 for 2023 (up from $2,300 for 2022) is taxed at the parents tax rate instead of the childs generally lower rate.
Form 8615 must be filed with the childs tax return if all of the following apply: The child had more than $2,500 of unearned income. The child is required to file a tax return.
Unearned income is not acquired through work or business activities. Examples of unearned income include inheritance money and interest or dividends earned from investments. Tax rates on unearned income are different from rates on earned income.
Use form FTB 3800, Tax Computation for Certain Children with Unearned Income, to figure the childs tax. Complete form FTB 3800 if all of the following apply: The child is 18 and under or a student under age 24 at the end of 2021. A child born on January 1, 2004, is considered to be age 18 at the end of 2021.
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For children under age 18 and certain older children described below in Who Must File, unearned income over $2,300 is taxed at the parents rate if the parents rate is higher than the childs. If the childs unearned income is more than $2,300, use Form 8615 to figure the childs tax.
Unearned income from interest, dividends, and capital gains are taxed in tiers defined by the IRS. For a child with no earned income, the amount of unearned income up to $1,250 is not taxed in 2023. The next $1,250 is taxed at the childs rate. Any amount above $2,500 is taxed at the parents rate.
For 2022, the standard deduction for a dependent child is total earned income plus $400, up to a maximum of $12,950. So, a child can earn up to $12,950 without paying income tax.

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