For something whose nickname sounds so innocent, the “kiddie tax” certainly can wreak havoc on unprepared taxpayers’ yearly returns.
Congress first introduced the kiddie tax as part of the Tax Reform Act of 1986 to discourage wealthy parents from sheltering their investment income in accounts under their children’s names, thereby avoiding paying taxes on the amounts. The rules have been tweaked periodically ever since.
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Jason Alderman directs Visa’s financial education programs. Follow him on Twitter @PracticalMoney.