PhD stipend / Kiddie Tax

[mgabrielle266]

I’m 22 in the first year of my PhD receiving a stipend of $32,000. Taxes are not taken out in each paycheck so I believe I will be receiving a 1098-T at the end of the year instead of a W-2.

Will my income be taxed at a weird percentage? Am I subject to the Kiddie Tax at a a rate of 37%? 

[mgabrielle266]

Update, I do not get the 1098-T, or a 1099-misc. I just get a courtesy letter to calculate my income at the end of the year.

[Carl]

I’m 22 in the first year of my PhD

Do you qualify to be claimed as a dependent on your parent's tax return? If yes, then that does not necessarily mean it's taxed at the highest tax rate. It just means it's taxed at your parent's tax rate. But for a stipend which is basically for everything but education expenses, I'm not even sure about that. Even though a stipend can most certainly include qualified education expenses. A stipend is basically treated the same as a grant.

[xmasbaby0]

https://ttlc.intuit.com/community/income/help/what-is-the-kiddie-tax/00/25913

https://ttlc.intuit.com/community/income/help/what-is-unearned-income/00/26621

[Hal_Al]

The "kiddie tax" is not based on being the parent's dependent. It's based on age (under 24), student status (full time) and earned income (the student's earned income is less than 50% of his support).

Education stipends are not typically considered earned income for tax purposes. Stipends are either taxed as other income or (less frequently) scholarships.

Beginning in 2018, the kiddie tax is applied at trust rates, rather than the parent's tax rate.  So, yes, you are technically subject to the Kiddie Tax as high as 37%.  See  https://www.marketwatch.com/story/new-tax-law-makes-dreaded-kiddie-tax-more-expensive-2018-09-24

EDIT (1-21-20) The new (2019) tax law reverts kiddie tax rates back to parent rates. 

[mohad62]

As of December 2019, the law (SECURE Act) has changed regarding the Kiddie Tax. My understanding, it is no longer based on Trust/Estate aggressive tax brackets starting with 2020 tax year (Kiddies Tax calculations revert to Parents' tax bracket). This repeal is optional for 2019 and 2018 via an amended return.

I hope someone with authority would confirm to debunk the above statement... it is only based on my understanding of the signed into law SECURE Act on Dec 20, 2019.

[Hal_Al]

@mohad62  - Google says you are correct: the kiddie tax based on trust rates was  repealed. In addition,  the legislation allows taxpayers to elect to have the change apply retroactively to the 2018. Taxpayers will  have to file amended federal income tax returns to claim a refund of the excess tax for 2018.

References: https://www.savingforcollege.com/article/congress-passes-kiddie-tax-fix

https://www.barrons.com/articles/the-secure-act-isnt-only-about-retirement-51578946297

[dmertz]

Yes, Sec. 501 of the SECURE Act repealed section 1(j) of the tax code that had children's unearned income being taxed at estate and trust tax rates for years 2018 through 2025.  Any child who has a nonzero tax calculated on 2018 Form 8615 probably needs to amend their 2018 tax return to obtain a refund.  If you want to use TurboTax to do the amendment you'll have to wait until Intuit updates 2018 TurboTax to reflect this change or use overrides and calculate the tax yourself.