Q. Does the new 3.8% surtax apply to the kiddie tax on a 2014 return? C.B., Santa Fe, NM
A. No. The kiddie tax generally applies to the unearned income of a child under age 19, or full-time student under age 24, to the extent it exceeds an annual limit ($2,000 in 2014). The excess is taxed at the top tax rate of the child’s parents regardless of the source of the income.
However, although most types of unearned income are included in the definition of “net investment income” (NII) for purposes of the 3.8% surtax, parents don’t have to pay the NII surtax on a child’s income.
Tip: The kiddie tax threshold remains at $2,000 for 2015.