For 2018–2025, the Tax Cuts and Jobs Act (TCJA) tax reform changes the kiddie tax rules to tax a portion of an affected child’s or young adult’s unearned income at the federal income tax rates paid by trusts and estates.
Trust tax rates can be as high as 37 percent or, for long-term capital gains and qualified dividends, as high as 20 percent.
Unearned income means income other than wages, salaries, professional fees, and other amounts received as compensation for personal services. So, among other things, unearned income includes capital gains, dividends, and interest.
Earned income from a job or self-employment is never subject to the kiddie tax.
The TCJA tax reform changes the kiddie tax rate structure for 2018–2025 only. The rest of the kiddie tax rules are the same as before.
But the cost of falling victim to the kiddie tax can be higher under the TCJA tax reform, so planning to minimize or avoid it can be more important than ever. Here’s what you need to know. ... Log in to view full article.