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"Kiddie Tax" Expanded to Include Junior in College for 2008

Congress passed an increase in the tax rate for children (aka "kiddie tax") over 20 years ago to prevent parents from sheltering income in accounts under the names of their lower-tax-rate children. The original law stated that certain investment income earned by children under the age of 14 would be taxed at their parents' rate; in 2006, that age was raised to 18. However, additional recent changes have raised that age to 24 in many cases.

For tax year 2008, the "kiddie tax" will apply as follows:

• Any child under the age of 18 at the end of the year with $1,800 or more in investment income (with the first $900 in earnings exempt but the next $900 taxed at the child's rate);
• A child who is age 18 at the end of the year and whose earned income is not more than half of the child's support; and
• A student who is under age 24 at the end of the year and whose earned income is not more than half of the child's support

The IRS defines a student as a child who, during any part of five calendar months of the year, was enrolled as a full-time student at a school or took a full-time, on-farm training course given by a school or a state, county or local government agency. A school includes a technical, trade or mechanical school. It does not include an on-the-job training course, correspondence school or a school offering courses only through the Internet.

For more information please contact Mary Ida Garcia at 312-980-2928 or contact your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.