![]() ![]() All the other kiddie tax rules are the same as before. Important: The SECURE Act only changed the kiddie tax rate structure. The repeal can be a significant tax-saver for children and young adults with substantial investment income. The SECURE Act reinstated the pre-TCJA kiddie tax calculation so that it’s once again based on the parent’s marginal federal income tax rate. So, the SECURE Act effectively provides a retroactive repeal of the TCJA change to the kiddie tax rates. But Congress also decided that the TCJA change to the kiddie tax rates unfairly increased the federal income tax bills of certain children and young adults, including those who are survivors of deceased military personnel, first responders and emergency medical workers. It was mainly intended to expand opportunities for individuals to increase their retirement savings. The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law at the end of 2019. The thresholds for the maximum 20% federal rate on net long-term capital gains and dividends are close, but not identical, to the preceding numbers. Why? Because the trust and estate rates quickly rise to 37% for ordinary income and net short-term capital gains and 20% for net long-term capital gains and qualified dividends.įor trusts and estates, the maximum 37% rate on ordinary income kicks in at the following taxable income levels: That change was criticized because it could cause the kiddie tax to be much more expensive for a child with substantial unearned income. Under the law, a portion of an affected child’s unearned income was taxed at the federal income tax rates paid by trusts and estates. Important: For simplicity, throughout this article we use the terms “child” and “children” to apply to both children and young adults who are under age 24 and may be subject to the kiddie tax.īefore the Tax Cuts and Jobs Act (TCJA), the federal kiddie tax rules taxed a portion of an affected child’s unearned income - typically from investments - at the parent’s marginal federal income tax rate if that rate was higher than the rate the child would otherwise pay.įor 2018 through 2025, the TCJA changed the rules. These so-called “kiddie tax” rules have gone through several changes in recent years. Do your children or grandchildren receive unearned income from investments? Federal tax law contains provisions that are designed to prevent high-net-worth individuals from shifting investment income to children and young adults in lower tax brackets to minimize the family’s overall tax bill. ![]()
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