Monday, June 27, 2011

SAVE TAXES BY HIRING YOUR CHILDREN (PART 3)

The Impact of Wages on the Kiddie Tax

Over the last few weeks I have talked about hiring your children. Here is additional information that you need to be aware of.

Keep in mind that bracket-shifting works even if the child is subject to the kiddie tax. The kiddie tax only causes a child’s investment income in excess of $1,900 for 2011 to be taxed at the parent's marginal rate. It has no impact on the child’s wages and other earned income, which can be sheltered by the child’s standard deduction.

As a refresher, the kiddie tax applies to a child who is age 18 or a full-time student age 19 through 23, if the child’s earned income for the year doesn't exceed one-half of his or her support. Thus, employing a child age 18 or a full-time student age 19–23 could also help to avoid the kiddie tax on his or her unearned income.