The Tax Cuts and Jobs Act has changed how kiddie tax is calculated.

Prior Law

Through December 31, 2017

Under pre-Act law, the amount of tax owed by the child under the kiddie tax provisions was based on the parents’ tax rates if the parents’ tax rates were higher than the tax rates of the child.

The kiddie tax applied to a child if: (1) the child had not reached the age of 19 by the close of the tax year, or the child was a full-time student under the age of 24, and either of the child’s parents were alive at such time; (2) the child’s unearned income exceeded $2,100 (for 2017); and (3) the child did not file a joint return.

New Law

Effective for tax years beginning after December 31, 2017

For tax years beginning after December, 31, 2017, the taxable income of a child attributable to earned income (wages) is taxed under the rates for single individuals, and taxable income of a child attributable to net unearned income (interest and dividends) is taxed according to the brackets applicable to trusts and estates.

Commentary

While the new law changes how to calculate the child’s tax, it does not make it any easier. In the past, the child could not file his/her return until their parents filed their return as the income of the parents was required. Under the new rules, the parent’s income does not factor into the calculation.

The new rules do add complexity to the tax calculation, as it is now based on two separate bracket calculations. For earned income, the income tax is calculated using the regular income tax brackets, while for unearned income the brackets for trust and estates are used.

The following are the compressed brackets for trust and estates:

For parents with higher income, this new law may actually decrease the amount of tax owed by the child.

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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