Does Congress really think they can clear up the deficit by penalizing children's earnings?
Are there SOOOO many children with unearned income that their earnings should be penalized by having them pay taxes at their parent's higher tax rate?
OK, I understand the investment income issue - with parents and grandparents wanting to transfer assets into the hands of children, allowing a small part of the earnings to be taxed at the child's lower rates (up to $1900). I understand assets like stocks, real estate, trusts, etc.
But ALL unearned income?
Are they nuts?
Read the instructions to Form 8615.
They define INVESTMENT INCOME as all unearned income. Everything. Not just interest, dividends and capital gains/distributions, but rents, royalties, trusts, pensions, annuities, and more.
That means taxable scholarships, it means prizes, it means any kind of miscelleous income that did NOT come from their parents.
It means distributions from IRAs, and the taxable part of 529 plans, and who knows what else.
AND it means the taxable portion of Social Security, too.That is ALSO taxed at the parent's highest rate.
Have you been reporting it correctly? Thank goodness I haven't had any clients with children who had these issues. But, who would ever have expected "Investment Income" to mean EVERYTHING?
I really hope our Senators' and Representatives' children's unearned income is being taxed correctly.
Anyone want to audit them?
Disgustedly yours!
Eva Rosenberg, EA
- 1654 reads
the "highest rate" scam is all over the tax code
I agree that taxing a kid's college savings account at the highest rate is ridiculous. But this "highest rate" scam is all over the tax code. For example, if you lived in New Jersey and worked in NY, you used to get taxed by NY only on the income earned in NY at the tax rate applicable to that income.
But the despicable Mario Cuomo, father of the present governor, got this changed to use the "highest rate" scam. So if you lived in NJ and your spouse worked in NJ while you worked in NY, you got taxed by NY at the "highest rate" based on your combined income. So if you earned $50K in NY and your spouse earned $100K in NJ, New York taxed your $50K of income at the rate applicable to $150K incomes.
New Jersey complained because the state knew that NY's scam would lead to much larger deductions for NY taxes by NJ residents who worked in NY. Cuomo didn't care, so NJ was forced to limit NY deductions using the "lowest rate". In other words, NJ only gave you a deduction for NY taxes based on the NJ rate on the $50K of NY income.
So NY (the Vampire State) took its bite, then NJ did likewise. No wonder so many residents of both states are moving south.