TCJA (Tax Cuts and Jobs Act of 2017) Modifies “KIDDIE TAX” For Unearned Income

If a child is under the age of 19, or, if a full-time student, under the age of 24 and has unearned income, then the “Kiddie Tax” is applicable to said unearned income.  Examples of unearned income includes, but is not limited to, dividends and interest. The “Kiddie Tax” was first introduced in the Tax Reform Act of 1986 to close a loophole through which wealthy parents would transfer assets that produced investment income to their children, so that the income could be taxed at the child’s lower tax rate. Under the TCJA of 2017, the child’s standard deduction and the Kiddie Tax threshold still remain at $1,050, respectively, so the child would pay no tax on unearned income up to $2,100, the same as under the 1986 Act. For tax years after December 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the tax rates that are applicable to trusts and estates, rather than the parents tax rates.  The following chart illustrates the applicable Kiddie Tax rates for tax years after December 31, 2017. UNEARNED INCOME SUBJECT TO KIDDIE TAX TAX RATE Up to $2,550 10% $2,551 to $9,150 24% $9,151 to $12,500 35% Over $12,501 37%   A child with a small amount of unearned income will pay less tax under the new tax rates, than if taxed at...

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