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.
Sign up for Kiplinger’s Free E-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.
-
Farewell to the Penny: U.S. Treasury Ends Production of One Cent CoinAfter more than 200 years, the U.S. bids adieu to the penny, citing high production costs and shifting economic practices.
-
Trump Pardons Wealthy Influencers for Tax, Medicare, Social Security FraudTax Law Recent pardons raise questions about tax fairness and the difference between tax avoidance and evasion.
-
Big GOP Tax Bill Could Change Your Estate Planning for 2025Tax Law The GOP might extend and increase the higher estate and gift tax exemption and AMT thresholds. What might this mean for your estate plan?
-
New 'No Tax on Tips' Bill Approved: What to Know NowIncome Taxes Will you stop paying taxes on your tip income this year?
-
Millions Could Lose SNAP Food Benefits Under Trump Tax Cut PlanTax Policy The House Agriculture Committee approved nearly $300 billion in cuts to SNAP benefits, putting many at risk of hunger.
-
Missouri Leads Capital Gains Tax Repeal: Will Your State Follow?State Tax As one state becomes a test case, policymakers and taxpayers across the U.S. will be watching closely to see what happens next.
-
Here's How the Child Tax Credit Could Increase Under TrumpTax Credits House Republicans released details on President Trump’s ‘one big, beautiful bill,’ including an increased child tax credit.
-
New Overtime Tax Deduction Proposed for Millions Working Extra HoursTax Law Some lawmakers and President Trump want to offer overtime tax relief. But will a tax deduction or an exemption help you most?
-
Big Tax Deduction Increase Proposed for Those Over Age 65Tax Deductions A new bipartisan bill and a tax plan from the House GOP could mean bigger retirement tax savings to offset taxes on Social Security and high prices.
-
Ten Cheapest Places To Live in New YorkProperty Tax If you’re planning a move in New York, here are the counties with the lowest property tax bills in the Empire State.
