In the past, parents would invest in the child's name in order to shift income to the lower-bracket child. However, the addition of the "kiddie tax" mostly put an end to that strategy.
For taxable years beginning in 2016, the amount that can be used to reduce the net unearned income reported on the child's return that is subject to the "kiddie tax" is $1,050 (same as 2015). The same $1,050 amount is used to determine whether a parent may elect to include a child's gross income in the parent's gross income and to calculate the "kiddie tax." For example, one of the requirements for the parental election is that a child's gross income for 2016 must be more than $1,050 but less than $10,500.
For 2016, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to "kiddie tax" is $2,100 (same as 2015).
Note: These rules apply to unearned income. If a child has earned income, this amount is always taxed at the child's rate.
