Capital Gains and the Kiddie Tax Under the New Tax Law

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: Now that the trust and estate tax rates apply for the kiddie tax, is there any break for long-term capital gains and qualified dividends?

Answer: Yes. The kiddie tax now uses the trust and estate rates – rather than the parents’ tax rate – to tax unearned income in excess of $2,100 earned by a child under age 19 or, if the child is a full-time student, under age 24. The trust and estate rates on ordinary income range from 10% to 37%, with the top bracket starting at just $12,500.

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Long-term gains and qualified dividends are taxed at 0% when income (including the gains and dividends) is under $2,600 and 20% when income exceeds $12,700. In between those amounts, the rate is 15%. Also, note that for kiddie tax purposes, the 3.8% surtax on net investment income hits income over $12,700.

McCormally retired in 2018 after more than 40 years at Kiplinger. He joined Kiplinger in 1977 as a reporter specializing in taxes, retirement, credit and other personal finance issues. He is the author and editor of many books, helped develop and improve popular tax-preparation software programs, and has written and appeared in several educational videos. In 2005, he was named Editorial Director of The Kiplinger Washington Editors, responsible for overseeing all of our publications and Web site. At the time, Editor in Chief Knight Kiplinger called McCormally "the watchdog of editorial quality, integrity and fairness in all that we do." In 2015, Kevin was named Chief Content Officer and Senior Vice President.