Calculations for unearned income for a child

[vvslavavv]

I'm trying to calculate the tax due for a child who has unearned income. My understanding is that for 2018, any unearned income above $2,100 is subject to tax under the "kiddie" tax tables. However, when filling out the turbotax forms, I only see a $1,050 standard deduction and all income above $1,050 becomes subject to taxes using the "kiddie" tax tables. 

[DDollar]

The Standard Deduction for individuals that can be claimed as a dependent is the lesser of (1) $12,000 or (2) the greater of $1,050 or $350 plus the individuals earned income.  So yes, if all the income is unearned, the amount over $1,050 is taxed using the "kiddie" tax tables.

The new law retains the computation of "net unearned income" (NUI) as a key element in determining the new kiddie tax. NUI is the excess of a child's unearned income over the sum of (1) $1,050, plus (2) the greater of $1,050 or the child's itemized deductions related to the unearned income.

So the amount above $2,100 is taxable.

For details on all the changes, see the following Journal of Accountancy article: https://www.journalofaccountancy.com/issues/2018/nov/irs-new-kiddie-tax.html

[Edited 03-26-19]

[vvslavavv]

Sorry, I don't quite get it. IRS publication for form 8615 states:

Change in tax rates. The Tax Cuts and Jobs Act of 2017 has modified the tax rates and brackets that you will use to figure the tax on your 2018 unearned income. Your tax rate is no longer affected by the tax situation of your parents or the unearned income of any siblings. Instead, all net unearned income over a threshold amount of $2,100 for 2018 is taxed using the brackets and rates for estates and trusts. These are shown in the following chart.

This makes it seem that only income above $2100 should be taxed at the "kiddie" tax rates?


Also from <a rel="nofollow" target="_blank" href="http://www.nolo.com">www.nolo.com</a>

However, the new rates can be higher than the parents’ rates which would have applied under prior law. For example, the kiddie tax rate is 37% on income over $12,500. A married couple would have to have over $600,000 in income in 2018 to pay tax at this rate. On the other hand, children with smaller unearned incomes could pay less under the new tax rates. For example, a child can have up to $4,650 in unearned income and pay only a 10% tax on $2,550 of it, for a $255 total tax. Most parents pay income tax at a higher rate than 10% (married taxpayers would have to have a taxable income of $19,050 or less to pay tax at this rate). With the new tax rates, it's important to monitor how much unearned income a child has during the year to make sure he or she avoids the high 35% or 37% brackets.


What am I missing?

[vvslavavv]

Sorry, I don't quite get it. IRS publication for form 8615 states:

Change in tax rates. The Tax Cuts and Jobs Act of 2017 has modified the tax rates and brackets that you will use to figure the tax on your 2018 unearned income. Your tax rate is no longer affected by the tax situation of your parents or the unearned income of any siblings. Instead, all net unearned income over a threshold amount of $2,100 for 2018 is taxed using the brackets and rates for estates and trusts. These are shown in the following chart.

This makes it seem that only income above $2100 should be taxed at the "kiddie" tax rates?

Also from www.nolo.com

However, the new rates can be higher than the parents’ rates which would have applied under prior law. For example, the kiddie tax rate is 37% on income over $12,500. A married couple would have to have over $600,000 in income in 2018 to pay tax at this rate. On the other hand, children with smaller unearned incomes could pay less under the new tax rates. For example, a child can have up to $4,650 in unearned income and pay only a 10% tax on $2,550 of it, for a $255 total tax. Most parents pay income tax at a higher rate than 10% (married taxpayers would have to have a taxable income of $19,050 or less to pay tax at this rate). With the new tax rates, it's important to monitor how much unearned income a child has during the year to make sure he or she avoids the high 35% or 37% brackets.

What am I missing? 

[hhlawrence]

what is included in unearned income for a child?

[ThomasM125]

@hhlawrence Unearned income is any income that does not come from a job or self-employment activity, such as would be reported on a W-2 or 1099-NEC form.