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Kiddie Tax Calculated at Parents Rates - is it calculating correctly?

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Level 1
last updated ‎July 21, 2020 10:58 AM

In ProSeries I have checked the box on the Form 8615 indicating that I would like to calculate the tax based on the Pre-TCJA (i.e. the parents rate). The two issues below are arising on the parent worksheet after this box has been checked.   I have called ProSeries but I am waiting on a phone call back as they were not able to solve my problem.  

Here are the two areas I am questioning:

1. Line 9 of the “8615 Parent Worksheet” indicates that this should be the tax on the amount on Form 8615 line 6. However, the amount on Line 9 is the same amount that is coming from the Child’s “Qual Div/Cap Gn” Worksheet. Shouldn’t the tax entered on this line be only calculated based on the amount on Line 6 of the “8615 Parent Worksheet” and not the child’s total taxable income?

2. The Schedule D worksheet (8615 D Wks) that is used for the calculation of the tax on Line 11 of the “8615 Parent Worksheet” only includes the parent’s qualified dividends and Long Term Capital Gains on Line 2 and Line 7. Due to this it is taxing all of the child’s income at the parent’s ordinary rates instead of the capital gains rates. Shouldn’t the amounts on lines 2 and 7 include both the parents and the child’s income that is subject to the lower capital gains rates?

In the returns I am working on the parents had originally reported all of the child's income on their personal return and we are amended to correct as they did not meet the qualifications to do so. When they included the Child's income on their return the tax liability was approximately $70K. When preparing the child's return and checking the box to calculate under the pre-TCJA (i.e. parents rates) the tax is calculated to be approximately $145K. I believe that this is due to the software taxing all of the child's qualified dividends and long term capital gains income at the parents ordinary rates instead of the parents capital gains rates.

These issues appear to be happening on both 2018/2019 software.  When looking at returns in the 2017 software that were subject to the kiddie tax under the parents rate it appears that the calculations were done differently. The forms are slightly different but the calculations in 2018/19 should be identical to 2017, but they are not as they are handling the above two items differently.  

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Level 15
Level 15
last updated ‎July 21, 2020 10:58 AM

TCJA did make changes to the kiddie tax, and then the SECURE Act made changes again, so it makes sense that 2018/19 would be different than 2017.
I have no clients that fall into this category of needing to file this way, so my experience/knowledge is slim.


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Highlighted
Level 1
last updated ‎July 21, 2020 10:58 AM

Prior to the TCJA the kiddie tax was calculated at the parents rates.  (2017 and prior)

When TCJA was enacted the kiddie tax was calculated using the trust rates.   (2018 and after) 

The SECURE Act allows you to now choose to use the trust rates or the parents rates.  (this is retroactive back to 2018)

So by checking the box to use the pre TCJA (i.e. the parents rates) I should be using the same calculations as in 2017.

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Level 10
Level 10
last updated ‎July 21, 2020 10:58 AM

fill out the worksheet on page 5 of the instructions for the 2019 8615 by hand to see if ProSeries matches.

Here is link: https://www.irs.gov/pub/irs-pdf/i8615.pdf