Form 8814 reporting dependents unearned income uses qualified dividends rate 15%. IRS Instructions says use estate tax rate which is 0. They are using bad rates?

[peterhawaii]

The IRS instructions and internet instructions says for 2018 when parents report dividend income, the tax rates will be the estate tax rates.  These rates are ).  How do we let ProSeries professional know the rules, and follow the rules.

[Terry53029]

Form 8814 is for reporting child's income on parents return, and will be taxed at parents rate. if you file a return for the child you use form 8615

[IRonMaN]

That was changed for 2018 to using trust and estate rates.  Without any numbers being provided, we can't tell if the software is really wrong at this point.

[Just-Lisa-Now-]

Doesn't it look at all income to see which bracket it lands in (like capital gains)....just because the dividends alone is below the threshold for being taxed, doesn't mean they will be taxed at 0%.

[Terry53029]

it is my understanding for 2018 to get the favorable kiddie tax, you must file the child's own tax return and fill out form 8615 in the child's return.

[rbynaker · Accepted solution]

I'm by no means an expert in these.  But, following the bouncing ball in IRC § 1:

https://www.law.cornell.edu/uscode/text/26/1

Kiddie tax is in subsection (g).  (g)(1) discusses the computation using the "allocable parental rate" (under the old rules).  (g)(7) discusses the election to report on parents return.

https://www.law.cornell.edu/uscode/text/26/1#g

https://www.law.cornell.edu/uscode/text/26/1#g_7

The 2018-2025 modifications are in the new subsection (j) with kiddie tax specifically in (j)(4).

https://www.law.cornell.edu/uscode/text/26/1#j

https://www.law.cornell.edu/uscode/text/26/1#j_4

"1(j)(4)(A) In general. In the case of a child to whom subsection (g) applies for the taxable year, the rules of subparagraphs (B) and (C) shall apply in lieu of the rule under subsection (g)(1)."

So the new rules supplant (g)(1) but do not appear to modify or make obsolete (g)(7).

Rick

[TaxGuyBill]

My brain can't handle all of the legalese today, but my first glance is that the Trust rates still apply.

(g)(7) still applies, but (g)(7)(B)(ii) still says the tax is the "amount determined under this section", which would include the Trust rate.

Right?  Or do I need to read it when I have a mind-set to read legalese?

[rbynaker]

I think "under this section" is much broader and simply refers to section 1, "Tax imposed".

[TaxGuyBill]

Right, but section 1 includes (j), which would put it at the Trust rates.

[Ernie]

Peter:  There are a lot of bugs in the system this year.  Most that I remember in a long time.  I will flag this to try and get it worked on.

[Ernie]

@Ashley at Intuit (aka Henry Jr) @Matt105 could you see this is documented as a problem.

[IRonMaN]

But we don't know if it is a problem at this point.