Note: The editors of Kiplinger's Personal Finance magazine and the Kiplinger Tax Letter are answering questions about the new tax law from subscribers to our free Kiplinger Today daily email. See other reader Q&As about the new tax law, or submit your own question.
Question: How does the new tax law treat the taxation of earnings inside a child’s Uniform Gift to Minors Account?
Answer: First, there is no change for 2017 earnings and, going forward, a child’s investment income in excess of a certain amount — $2,100 for both 2017 and 2018 — continues to be subject to the “kiddie tax.” But there is a big change.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In the past, earnings subject to the kiddie tax were taxed at the parents’ tax rate. Starting with 2018 returns, the parents’ rate will not matter. Instead, investment earnings in excess of $2,100 will be taxed at the rates that apply to trusts and estates. Here are those rates for 2018:
- Up to $2,550 10%
- $2,550 to $9,150 24%
- $9,150 to $12,500 35%
- Over $12,500 37%
Note that under the new individual income tax brackets, the top 37% rate doesn’t kick in for individual taxpayers until taxable income exceeds $500,000. At first blush, it might appear that the severely compressed rate structure that tops out at $12,500 will trigger bigger tax bills than in the past. But that’s not necessarily the case. It depends on the amount of income subject to the kiddie tax and the parents’ tax bracket.
Consider, for example, a situation in which a UGMA throws off $5,000 of income subject to the kiddie tax and that the parents have taxable income of $150,000. In 2017, applying their 25% rate to the $5,000 would have cost $1,250. If the old rules still applied, using the parents’ new 22% rate would result in an $1,100 tax on that $5,000 of income. Applying the trust tax rates produces a kiddie tax bill of just $843 on the child’s investment income.
The kiddie tax applies to investment income of children under age 19 or, if full-time students, age 24.
-
Fed's Rate Cuts Could Have Impacts You Might Not AnticipateUnderstanding how lower interest rates could impact your wallet can help you determine the right financial moves to make.
-
Past Performance Is Not Indicative of Your Adviser's ExpertiseMany people find a financial adviser by searching online or asking for referrals from friends or family. This can actually end up costing you big-time.
-
I'm want to give my 3 grandkids $5K each for Christmas.You're comfortably retired and want to give your grandkids a big Christmas check, but their parents are worried they might spend it all. We ask the pros for help.
-
5 Types of Gifts the IRS Won’t Tax: Even If They’re BigGift Tax Several categories of gifts don’t count toward annual gift tax limits. Here's what you need to know.
-
The 'Scrooge' Strategy: How to Turn Your Old Junk Into a Tax DeductionTax Deductions We break down the IRS rules for non-cash charitable contributions. Plus, here's a handy checklist before you donate to charity this year.
-
Tax Refund Alert: House GOP Predicts 'Average' $1,000 Payouts in 2026Tax Refunds Here's how the IRS tax refund outlook for 2026 is changing and what steps you can take now to prepare.
-
New IRS Changes to FSA Contribution Limits for 2026: What to KnowHealth Care Flexible Spending Accounts have tax advantages worth looking into, especially in light of new IRS changes.
-
Is a New $25,000 Health Care Tax Deduction Coming in 2026?Tax Policy A proposal from GOP Sen. Josh Hawley adds to the chatter about health care affordability.
-
Are You Middle-Class? Here's the Most Tax-Friendly State for Your FamilyTax Tips We found the state with no income tax, low property tax bills and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
