The new tax law really raised some people’s income taxes due to the “Kiddie Tax”

The “Kiddie Tax” has been around since 1986.   Through the end of 2017 the “Kiddie Tax” caused children to have to pay higher income taxes (mostly at their parents income tax rates rather then the child’s income tax rates) on their unearned income.

The Tax Cuts and Jobs Act (TCJA) made major revisions to the Federal tax code for 2018 – 2025.  A majority of these changes lowered taxes for many people; however, there were several changes that will cause some taxpayers to pay higher taxes.  The “Kiddie Tax” changes in the TCJA is one area that is going to increase the taxes for many younger people with a significant amount of investment income.

The “Kiddie Tax” still effects unearned income such as dividends, interest, capital gains, most income from rentals properties, social security benefits, pension or annuity income, and income received as the beneficiary of a trust to name a few.

Generally speaking the “Kiddie Tax” must be paid if all four of the below are true:

  1. Child is not married and filing a joint return with spouse AND
  2. At least one parent is alive at year end AND
  3. Net unearned income was greater than $2,100 for 2018 and child has positive taxable income after all applicable deductions AND
  4. If 17 or younger at year end OR if 18 and not claimed as a dependent by parent OR 19-23 years old and a full time college student and claimed by parents.

The new law forces those subject to the “Kiddie Tax” to pay income tax rates that are the same as trusts and estates.  This is a major tax increase for most of the people subject to the “Kiddie Tax.”

If you or your kids are subject to the “Kiddie Tax” please give Mike Sylvester, CPA a call at 260-407-5000.

Mike Sylvester, CPA/ABV, MBA



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