The SECURE Act includes some far-reaching changes to retirement, but also a relatively innocuous-looking change that can make a big difference to parents of kids with unearned income.  This change is embodied in the ‘Kiddie Tax’.  Prior to the Tax Cuts and Jobs Act (TCJA), children with unearned income had received the first $1,100 of unearned income tax-free, and the next $1,100 was taxed at the child’s rate.  Earnings over $2,200 were taxed at the parent’s rate. TCJA changed that rate to the trust income tax rates, which could be much higher than the parent’s rate and created a draconian penalty on a child’s unearned income. Cohen & Company’s Jonathan Williamson, CPA, MT, notes, “Certain unearned income of children has long been taxed at rates outside of said child’s tax bracket, a provision more commonly known as the ‘kiddie tax’. This rule is in place to curb parents from pushing certain types of income into lower tax rates of their children.”

Click here to read the full blog post by Leon LaBrecque on Forbes.com.

 

View Leon LaBrecque's Forbes contributor profile and other blog posts here: https://www.forbes.com/sites/leonlabrecque/

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Image is Getty from original post on Forbes.com.