The first $1100 is not taxed, the next $1100 is taxed at the child's tax rate, which will be lower than yours. And anything over $2200 is taxed at either your tax rate or the child's - whichever is higher. So, the amount between $1101 and $2200 is taxable, but at the child's tax rate.
The tax changes for 2020 and 2021 now make the Kiddie Tax revert back to using the parental rates, instead of the rates for estates and trusts like in 2018 and 2019 above.
Remember that the Kiddie Tax only applies to unearned income in excess of $2,200. Here’s an illustration of how a child's unearned income in 2021 would be taxed:
- $0 - $1,100 isn't taxed - the dependent standard deduction is $1100, see below
- $1,100 - $2,200 is taxed at the child’s tax rate
- Over $2,200 is taxed at the parents’ rate (or the child’s rate if it's higher)
If you can be claimed as a dependent by another taxpayer, your standard deduction for 2021 is limited to the greater of: (1) $1,100, or (2) your earned income plus $350 (but the total can't be more than the basic standard deduction for your filing status).
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