Final answer:
The purpose of the tax on unearned income for minor children in income taxation is to ensure that minors are not able to receive unearned income without any tax liability. The mechanism involves calculating the unearned income of minor children and applying the appropriate tax rate to that income.
Step-by-step explanation:
In the context of income taxation, the purpose of the tax on unearned income for minor children is to ensure that minors are not able to receive unearned income without any tax liability. This tax is applied to income that is generated from investments, gifts, and other sources, rather than through employment or active business activities. The mechanism of this tax involves calculating the unearned income of minor children and applying the appropriate tax rate to that income.
For example, let's say a minor child receives $2,000 in dividends from stocks they own. This would be considered unearned income, and depending on the tax rate for unearned income, the child may owe a certain percentage of that income as tax.
Overall, the tax on unearned income for minor children helps to ensure a fair distribution of tax burdens and prevent tax evasion by requiring minors to pay taxes on any income they receive.