2019 Child tax on unearned income (pre/post-TCJA)

[kak531]

Now that TT has been updated with 2019 child tax updates, I ran my child's return out both ways (pre/post-TCJA).  I was shocked to see under the pre-TCJA rules that they would owe significantly more than post-TCJA (and more than they have historically have).  Anyone else run into this?  I'm wondering if the pre-TCJA selection in TT still has some bugs in it?  Hi-level stats below:

     Child's taxable income (1040-L11b)               $5K  (all unearned)

     Parents taxable income (1040-L11b)          $300K

     Child's Pre-TCJA Fed tax (1040-L12b)           $700

     Child's Post-TCJA Fed tax (1040-L12b)         $170 

[DawnC · Accepted solution]

The Tax Cuts and Jobs Act (TCJA) made substantial changes to the Kiddie Tax in 2018 through 2025. Instead of using the parent’s highest marginal rate, the Kiddie Tax is now determined by the tax brackets and rates for trusts and estates. Here’s what those work out to:

• The first $2,600 (after the initial $2,200) is taxed at 10%
• The next $6,700 is taxed at 24%
• The next $3,450 is taxed at 35%
• Anything beyond that is taxed at 37%

[josh4256]

I also just did the same and noticed the same thing.  My child's pre TJCA is higher than post TJCA.  But I see, either way, the parent's information has to be entered fully.  So my question is, because TT makes you input all the information for pre and post (I could not file the tax return if I did not enter parent's income 11b, qualified dividends, schedule d line 7, 15, 18 and 19 info (don't have 4952), I could not file.  So because the information is being transmitted, and say I chose the post TJCA, won't the IRS notice this and say, hey you should have paid the higher tax amount?

Second item on this TT question:  If the parent's had capital gains/losses in 2019, enter any qualified dividends that appear on form 1040 line 9b?  I don't see a line 9b.  Qualified dividends are 1040 line 3a right?  Is this a TT reference mistake?

Thank you!

[JDDDGA]

I just ran into the same thing for one of my kids and definitely chose to not select the pre option.  There was more than a 50% impact using the pre option.

  I believe you are right that it is lines 3a/3b for dividends, etc.

I noticed on the form 8615 instructions, there is an option for the child to file an amended return if the parents amounts change after they file.  There is also wiggle room based on the section titled "incomplete information for filing".  It states you can use reasonable estimates 

[KathrynG3]

"So because the information is being transmitted, and say I chose the post TJCA, won't the IRS notice this and say, hey you should have paid the higher tax amount?"

Not necessarily. You are allowed and expected to file using the most advantageous tax treatment allowable by law.

"If the parent's had capital gains/losses in 2019, enter any qualified dividends that appear on form 1040 line 9b?"

Yes, refer to line 3a for qualified dividends from your parents' returns.

@josh4256

Yes, however, the rest of the paragraph in the 2019 Form 8615 Instructions regarding incomplete information for filing states on page 2 column 1: "When the correct information is available, file Form 1040-X, Amended U.S. Individual Income Tax Return. Instead of using estimates, you can get an automatic 6-month extension of time to file. For details, see Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return."

@JDDDGA

[Anonymous]

@KathrynG3 That is correct about being able to use whatever method is most advantageous to you. Sort of like having the option of Joint vs Married Filing Separately.  However, the question still remains about whether TT is calculating this correctly. It is odd that the post TCJA results are more favorable than the pre-TCJA and that's what many people are finding.  But maybe I am missing something.

[DawnC]

The post-TCJA results will be more favorable to parents who are in high tax brackets because the old rules use the parents' highest marginal tax bracket to calculate the tax.  If you are in a lower tax bracket, the old rules will provide a better result.  The pre-TCJA rules will be better for some, while Post-TCJA will be better for others.  And yes, when given a choice, always choose the option that results in a lower tax bill. 😉

@Anonymous

[Anonymous]

@DawnC Thanks for the reply.  But I am still not sold that TT is calculating this correctly.  The post-TCJA tax due remains exactly the same as before I entered anything 8615-related.  The pre-TCJA adds $250 to the tax due.  The only thing I can think of where that would happen is if there's a 0% tax bracket in the progressive rates of the post-TCJA.

[KathrynG3]

Yes. There is a 0% rate for the first $2,200. Please see TurboTax Expert DawnC's answer showing the tax bracket changes at this link: 2019 Child Tax on Unearned Income Pre and Post TCJA.

[kak531]

Thank you for all the help and comments.  I went back thru my older returns and determined my child's unearned income was much lower on 2017 and earlier returns.  2018 was the first year my child's income was >$4K and tax $0. 

So it appears TT is computing it correctly, I just didn't realize how much my child benefited under the TCJA (roughly $500 less tax), but that appears to end next year as the new "Secure Act", reverts the TCJA starting in 2020 (optional in 2018/2019).  Will have to try to avoid taking any capital gains :(.   

[ttlongtimeuser]

I am sorry, but I do not agree that the Pre-TCJA option is better for parents with lower income. In my case, the parent's 1040 line 11b is only $49,378, Child's unearned income is $5,051. (Ord. Div $1,538, Qual. Div $787,

Capital gains $5697.  And, Pre-TCJA tax is $493, versus calculation post-TCJA, using Estate and Trust -  the tax is only $360.  $133 DIFFERENCE

I also printed all 8615 worksheets in both cases and I see errors like: 

1. In Pre-TCJA, Sched D Tax Worksheet, line 2 = "Enter your qualified dividends from Form 1040 line 3a"  = $239  This is NOT CORRECT,

And Family's Aggregate Line 7 Sched.D Cal line 2 = "Enter your qualified dividends from Form 1040 line 3a"  = $548 also NOT CORRECT.

I agree $239 + $548 = $787  

I searched  8615 Instructions (updated February 2020)  and found no calculation worksheet to 

confirm your calculation.

2. In post-TCJA, both: Qualified Div and Capital Gain Tax Worksheet line 2, as well as Sched D Tax Worksheet, line 2 = "Enter your qualified dividends from Form 1040 line 3a" = $787 WHICH IS CORRECT. 

[ttlongtimeuser]

Neither of the replies above gives a satisfactory answer - why post-TCJA kiddie tax is HIGHER than

pre-TCJA tax calculated if the parent is in a lower tax bracket (12%) comparing to the Estate and Tax brackets mentioned above.

In my case, parent, Head of Household, has taxable income 1040 ln 11b = $49,378

The child's unearned income is $7,251 and child's earned income $2,122

Also, the calculations worksheets to calculate 8615 line 7  are at least confusing if not incorrect

1, 8615 Schedule D Tx worksheet  line 47 says = Enter this amount on Form 8615 line 7 =$493

2. page 2  Family's Aggregate Line 7 Schedule D Tax Calculation, line 47 says the same

    Enter this amount on Form 8615 line 7  =$3,254

I am glad TT chose the smaller number ($493) to carry as line 7 to 8615

Still, I am surprised,    why PRE-TCJA tax is higher for HH parent with $50K taxable income

(earned income = $57,000, Capital Gains, div and int = $23,000, total $80K minus itemized deduc. and credits =$30K, so taxable income = $50K.)

Can you run these numbers thru TT and explain why pre-TCJA is higher than post-TCJA?

I will greatly appreciate. Thank You.

[ttlongtimeuser]

DawnC - I posted 2 replies with the real numbers from my child's return, and with my Taxable income of $49,378 (Head of Household)   she is paying more in pre-TCJA case  ($407)  than at Estate &Trust post TCJA situation  ($276)

I see that Turbotax has updates every couple of days, but  Kiddie Tax calculations haven't been fixed yet.

Can you help?  Am I doing something wrong?

[MYX]

The Kiddie Tax module is botched.  I have been struggling with this issue since mid-March.  When I make the election the tax for my child is orders of magnitude higher than when not making the election.  This result given the underlying facts for my family situation is counter-intuitive.  I then went and used a free version of TaxSlayer and the result with and without the election was very close, which makes far more sense.  I reported this anomaly to TurboTax weeks ago and went through some sort of diagnostic process whereby I submitted anonymized returns with and without the election that are identified only by "Token Numbers" for Intuit analysis to determine the root cause of the problem.  I was informed that at least in my case there is indeed a bug and to stand by for updates.  That was weeks ago.  I tried again today to get reliable results using TurboTax and whatever has been done has I believed made the situation worse.  To add insult to injury, the Intuit support person with whom I had been corresponding by e-mail has abandoned me.  What a disgrace!  When will this module be fixed?  I hope before July 15.  

[ttlongtimeuser]

MYX, I don't think we will get any response to our posts here as this thread is being marked "SOLVED".  I strongly disagree that "Kiddie Tax" issue is being solved.  Have the same problem as you do.

Do you have some phone# to Turbo Tax support you can actually talk to a person?    I am so frustrated, that I am ready to file post-TCJA (lower numbers) and eventually amend when TT finally will fix the issue.

Besides - with pre-TCJA, I would have to mail the return anyway...

I went through all worksheets calculations which derive final number 8615 line 7 and the description of these lines and the numbers TT fills them in do not make sense to me.  Please let me know if you finally get a satisfactory solution.