Question

The tax provision that reduces parents' ability to shift unearned income to children is called the.

a) Child Tax Credit
b) Kiddie Tax
c) Earned Income Credit
d) Dependent Care Credit

Answer 1

The tax provision that reduces parents' ability to shift unearned income to children is called the Kiddie Tax.

Step-by-step explanation:

The tax provision that reduces parents' ability to shift unearned income to children is called the Kiddie Tax.

The Kiddie Tax is a tax provision that is aimed at preventing parents from transferring their unearned income, such as investment income, to their children in order to take advantage of their lower tax rates. Under the Kiddie Tax rules, unearned income above a certain threshold is taxed at the parents' tax rate instead of the child's tax rate.

This tax provision helps to ensure that parents cannot unfairly avoid taxes by manipulating their children's income, and it helps to maintain the integrity of the tax system by treating unearned income in a consistent and fair manner.