Congress Passes Kiddie Tax Fix
The SECURE Act repeals the change to the Kiddie Tax, reverting to the rules that were in effect before 2018.
The Tax Cuts and Jobs Act of 2017 changed the so-called Kiddie Tax, which taxed a child’s unearned income at the tax rates of the child’s parents. Starting in 2018, however, the Kiddie Tax was based on the much higher tax rates for estates and trusts. This significantly increased the tax rates that apply to the taxable portion of college grants, scholarships and fellowships and to military survivor benefits of Gold Star families. It also caused low- and middle-income children to be taxed at much higher rates than their parents. Families were shocked when they saw the increase in their tax liability from the Kiddie Tax changes. Many families had to scramble to find the money to pay the big tax bills.
This “fix” which was signed into law on December 20th changes the tax rates for computing the kiddie tax back to the parents’ rate. Further good news is that 2018 returns can be amended to claim a refund for excess taxes paid.