Loopholes > Federal > Income Shifting to Children
DEDUCTION MEDIUM SAVINGS INDIVIDUAL

Income Shifting to Children

IRC §73

Income earned by a child for their services is taxed to the child rather than the parent, even if the parent receives the money. This allows the income to be taxed at the child's likely lower tax rate and utilizes the child's standard deduction.

Eligibility

Applies to parents who employ their children in a family business or where children earn independent service income.

Frequently Asked Questions

Who is eligible for the Income Shifting to Children?

Applies to parents who employ their children in a family business or where children earn independent service income.

How does the Income Shifting to Children work?

Income earned by a child for their services is taxed to the child rather than the parent, even if the parent receives the money. This allows the income to be taxed at the child's likely lower tax rate and utilizes the child's standard deduction.

What law authorizes the Income Shifting to Children?

The Income Shifting to Children is authorized under IRC §73 of the Internal Revenue Code (Title 26, United States Code).

Statutory Text — IRC §73

Source: Internal Revenue Code, Title 26, United States Code

§ 73. Services of child(a) Treatment of amounts receivedAmounts received in respect of the services of a child shall be included in his gross income and not in the gross income of the parent, even though such amounts are not received by the child. (b) Treatment of expendituresAll expenditures by the parent or the child attributable to amounts which are includible in the gross income of the child (and not of the parent) solely by reason of subsection (a) shall be treated as paid or incurred by the child. (c) Parent definedFor purposes of this section, the term “parent” includes an individual who is entitled to the services of a child by reason of having parental rights and duties in respect of the child. (d) Cross referenceFor assessment of tax against parent in certain cases, see section 6201(c). (Aug. 16, 1954, ch. 736, 68A Stat. 24.)

Legal Sources

US Code (Official) — 26 USC §73 → Cornell Law Institute — 26 USC §73 → Search IRS.gov for IRC §73 → Treasury Regulations (26 CFR) →
OpenLoopholes Data View Raw JSON → View on GitHub →

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