Secure Act Retroactive Change to Kiddie Tax

[MDD1]

When will Turbo Tax update its 2018 and 2019 tax year software for the retroactive SECURE Act/Kiddie Tax changes to allow users to amend their 2018 return and file their 2019 return?  My college-age son paid very high taxes on his 2018 return and made significant estimated taxes toward his 2019 return because of a college scholarship stipend that exceeded his tuition costs.  I'd like for him to recover some of his paid taxes as soon as possible.  Thank you.

[SusanY1]

 We are expected to have changes implementd to the 2018 amendment software ready approximately mid-March. You can sign up HERE to be notified when the update has been made.  

I do not have a firm date on the final updates for the 2019 software, but I expect the timeline to be similar.  

I have your post on my watch list and if I get a firm date or other information, I will return and let you know!

[SusanY1]

I am told that the issue for 2019 is working properly now.  This is one of the very few that I can't test on my own since the block appears when it's time to actually file the return and we test it with the very same software that you have - and I don't have a 1099Q to file! 

If your son has issues when it is time to file, can you please post again to let me know? I will continue to watch the post over the coming days just in case, and if you're still having any problems please let me know what happens when you try to file so I can look into it right away for you.  

[MDD1]

Susan, thank you for your responses.  My son will file his 2019 return within about a week and I will post whether or not his tax rate appears to be in line with the new law.   Please post when you have further details about the 2018 software update so he can amend his 2018 return.

[KarenM90]

2018 is planned to be updated by mid-March.  

Please sign up by using this link to be notified when the update is ready:  Sign up for Notification on 2018 Update

[Commander K]

I worked on my son's 2019 return today using TurboTax Premier.  It calculates his kiddie tax based on the estates and trusts rates and does not offer an election to use the parents' rates.  So unless I'm missing something, the Secure Act provisions have not yet been worked into the software for tax year 2019.

[DoninGA]

---

@Commander K wrote:

I worked on my son's 2019 return today using TurboTax Premier.  It calculates his kiddie tax based on the estates and trusts rates and does not offer an election to use the parents' rates.  So unless I'm missing something, the Secure Act provisions have not yet been worked into the software for tax year 2019.

---

Form 8615, Tax for Certain Children who have Investment Income has not been finalized.  It is estimated to be available on 03/06/2020

[MDD1]

I provided the original post on this thread, and I have an update that I'd like to run by the community here.

My son and I just completed his 2019 tax return, and I was disappointed that that his taxes were about the same as last year when the Kiddie Tax was applied at the estate rate.  So I looked at Form 8615 (Tax for Certain Children Who Have Unearned Income) in the TurboTax forms section and saw a block between line 6 and 7 that is "Election to Use Pre-TCJA Calculation Smart Worksheet."  TCJA is Tax Cuts and Jobs Act which created this mess as explained in this article: https://www.marketwatch.com/story/the-secure-act-has-a-present-for-parents-an-easing-of-kiddie-tax-p...

Once I checked that block to make that election, my son's tax burden decreased substantially.  This created another Form 8615 worksheet titled "Parent's Investment & Net Capital Gain Worksheet" where I'm currently entering my parental taxable income that presumably allows his tax rate to equal mine.

Does this seem like the right process?  If so, it doesn't seem like an intuitive process, and a less curious or less informed taxpayer would be paying way to much tax if they simply plug and chug their numbers in TurboTax.

[KrisD15]

You may be interested in this: 

thread

[MiTi]

It's same as my case when I select "Election to use Pre-TCJA Calculation Smart Worksheet", the federal tax is decreased.

It seems that there is something not reasonable with turbo tax regarding form 8615.

[LinaJ2020]

It really depends if your parent is in a high tax bracket or if you have a lower amount of investment income.  Without seeing your return, I can't tell you why your federal tax has been decreased. 

But here is the reference:

Usually, the TCJA rate ( Estate and Trust rate) benefits you if your parent is in a higher tax bracket or you have a smaller amount of unearned income.  For example, if your parent's income is in $300,000, which is in the high-income tax bracket (~35%) and let say you have about $2,500 investment income.  The TCJA rate would benefit you more as you will be in the 10% or less.  See the images below. 

The 2019 rates and brackets were announced by the IRS in Rev. Proc. 2018-57 on Nov. 15, 2018.4

• $0 to $2,600 in income: 10% of taxable income
• $2,601 to $9,300 in income: $260 plus 24% of the amount over $2,600
• $9,301 to $12,750 in income: $1,868 plus 35% of the amount over $9,300
• Over $12,750 in income: $3,075.50 plus 37% of the amount over $12,750

The way how Kiddie Tax is calculated by using the Pre-TCJA rate:

First, add up the child’s net earned income and net unearned income. Then subtract the child’s standard deduction to arrive at taxable income. The portion of taxable income that consists of net earned income is taxed at the regular rates for a single taxpayer. The portion of taxable income that consists of net unearned income and that exceeds the unearned income threshold ($2,100 for 2018; $2,200 for 2019 and 2020) is subject to the Kiddie Tax and is taxed at the parent(s)’ marginal federal income tax rate. That rate can be as high as 37% for ordinary income and short-term gains and 20% for long-term gains and dividends. 

@MiTi

[CDR KBN]

I gave up on TurboTax and filled out my son's return by hand.  Form 8615 is a little tedious to get through, but I saved $1,400 for my son by filing using the parents' rates.  Obviously, it's worth the effort.

[joelevy]

Hi @KarenM90 - I get an error when I click that link.  Has TT 2018 been updated for The Secure Act?  Need to refile my kiddie tax stuff but waiting for the update.  Please advise.  Thanks -  Joe