What is the unearned income threshold for a child before the "kiddie tax" is applied?

The unearned income threshold for a child before the "kiddie tax" is applied for the 2022 tax year is indeed $2,300. This threshold refers to the amount of unearned income that a child can have without being subject to the kiddie tax rules, which tax certain unearned income at the parent's tax rate rather than the child's lower tax rate. When a child's unearned income exceeds this amount, the excess income is taxed at the parent's tax rate, which can lead to a higher tax liability than if it were taxed at the child's rate.

This provision is in place to prevent parents from shifting income to their children to take advantage of the lower tax rates that apply to children. The threshold is regularly adjusted to account for inflation, which reflects the IRS's policy on keeping tax rules up to date with economic conditions. Therefore, for 2022, any unearned income a child accumulates above $2,300 triggers the application of the kiddie tax. Understanding this threshold is crucial for effective tax planning for families with children who have investment income.