Kiddie tax

Ordinary and capital gains tax rates of estates and trusts will be applied to unearned income of children instead of parents’ tax rates.

The “kiddie tax” was enacted by Congress to prevent taxpayers from shifting income to children, who are subject to lower tax rates.

For 2017 the kiddie tax was calculated by reference to the parents’ tax rates. For 2018 the TCJA amends the kiddie tax by changing the reference to the estate and trust income tax rates. The computation of the kiddie tax maintains a standard deduction equal to the greater of $1,050 or the child’s earned income plus $350 (not to exceed $12,000). Furthermore, there is an unearned threshold amount of $2,100, which is taxed at the child’s applicable income tax rates; however, the tax due on unearned income in excess of that amount is determined by reference to the estate and trust income tax rates.