Final answer:
If both parents of the child are deceased, the kiddie tax does not apply. Other statements regarding the use of the noncustodial parent's income, requiring parents to include a child's unearned income on their return, and the adjustment for inflation in the application components are incorrect.
Step-by-step explanation:
Regarding the kiddie tax, the correct statement is as follows: The kiddie tax does not apply if both parents of the child are deceased. Under current tax law, the kiddie tax is designed to prevent families from shifting income to children in lower tax brackets to reduce the overall tax burden. Here's why this option is correct:
- If both parents are deceased, the child's unearned income may be subject to tax but not under the specific rules of the kiddie tax.
The other statements provided are incorrect because:
- If the parents are divorced, it is the custodial parent's income that is taken into consideration, not the noncustodial parent's income.
- The kiddie tax rules allow the child's unearned income to be taxed at trust and estate tax rates or the child's parent's tax rates if that rate is higher, but it does not require parents to include it on their income tax return.
- The components for the application of the kiddie tax are indeed subject to annual adjustment for inflation.
The kiddie tax regulations have significantly evolved to close tax loopholes and ensure fair taxation according to one's income bracket while considering the allocation of parental tax burdens.