Thursday, January 18, 2018


Under the GOP Tax Act, effective with tax year 2018 the “Kiddie Tax” is no longer calculated based on the parent’s income, and the income of siblings is also no longer a part of the calculation.

The “old” law added a child’s “excess” net investment to the net taxable income of the parent(s) when calculating the tax, and the income of all dependent children was taken into consideration in the calculation.

I must point out - there is no change to the Kiddie Tax for the 2017 tax return that will be prepared in the next few months.  The 2017 Kiddie Tax is calculated in the same way as the 2016 Kiddie Tax.

And a reminder - the Kiddie Tax applies, in 2017 and 2018, to dependents who are a full-time college student under age 24.

The Earned Income – W-2 income and net earnings from self-employment - of a dependent “child” subject to the Kiddie Tax is taxed at the Single tax rates.  Net unearned income – basically investment income - in excess of $2,100 is taxed using the tax rates for Estates and Trusts.

Here is the new tax rate schedule for 2018 for Estates and Trusts -

If taxable income is = the tax is:

Not over $2,550 = 10%
Over $2,550 but not over $9,150 = $255 plus 24% of the excess over $2,550
Over $9,150 but not over $12,500 = $1,839 plus 35% of the excess over $9,150
Over $12,500 = $3,100.50 plus 37% of the excess over $12,500

While this initially appears to result in higher taxes on the “excess” investment income of dependent children, like what you’re liable to read in the Bible, it ain’t necessarily so.  It depends on the amount of income subject to the kiddie tax and the parents' tax bracket.

This change does, however, somewhat simplify the calculation of the Kiddie Tax, which, as a tax preparer, has always been a bit of a PITA in the past, especially when the income of several dependent children was involved.


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