Which Law Repealed the TCJA Kiddie Tax Changes?

Meta Description: The SECURE Act repealed the Tax Cuts and Jobs Act’s kiddie tax changes, restoring the prior method for taxing certain children’s unearned income.

The Setting Every Community Up for Retirement Enhancement Act of 2019, commonly called the SECURE Act, repealed the Tax Cuts and Jobs Act’s changes to the kiddie tax. The repeal returned the tax calculation to the rules that generally applied before 2018, under which a child’s net unearned income above the applicable threshold could be taxed at a parent’s marginal tax rate. The change took effect for tax years beginning after December 31, 2019, and taxpayers could elect to apply it to 2018 and 2019 returns.

The Law That Repealed the Kiddie Tax Changes

The repeal is in Section 501 of the SECURE Act, enacted as part of the Further Consolidated Appropriations Act, 2020. That larger law is Public Law 116-94, signed on December 20, 2019. Section 501 is titled “Repeal of Kiddie Tax Changes.”

The provision reversed a change made by the Tax Cuts and Jobs Act (TCJA), enacted in 2017. The TCJA had altered how a child’s unearned income was taxed. The SECURE Act restored the pre-TCJA approach, commonly described as taxing certain income at the parent’s marginal rate rather than using the tax brackets for trusts and estates.

In short, the answer is the SECURE Act of 2019. The repeal was not a separate law passed in 2018, nor did it eliminate the kiddie tax itself. It changed the method used to calculate the tax on qualifying unearned income.

What the TCJA Changed

The kiddie tax is a federal income tax rule for certain children with unearned income. Unearned income can include taxable interest, dividends, capital-gain distributions, and other income that is not compensation for work. The rule is intended to limit the tax benefit of shifting investment income to a child who may otherwise have a lower tax rate.

Before the TCJA, the kiddie tax generally divided a child’s unearned income into portions. A limited amount was covered by the child’s standard deduction or other applicable rules, another portion was taxed at the child’s own rate, and net unearned income above the relevant threshold was generally taxed at the parent’s marginal rate. Specific calculations depend on the child’s income and filing circumstances.

The TCJA changed the treatment of that upper portion. For tax years beginning after 2017, it generally applied the tax rates and brackets for estates and trusts to a child’s net unearned income subject to the kiddie tax. Estate and trust brackets reach their highest marginal rate at comparatively low income levels. As a result, some families faced higher tax bills even when the parent’s marginal rate was lower than the rate the trust brackets produced.

The TCJA change also affected some children whose circumstances were different from the typical investment-income scenario, including certain children receiving survivor benefits. The effect varied by the amount and type of income and by the family’s tax situation. The practical concern was that a child’s tax rate could become less connected to the parents’ rate than under the prior system.

How the SECURE Act Restored the Prior Method

Section 501 of the SECURE Act repealed the TCJA provision that had applied estate and trust tax brackets to the affected income. It restored the general approach in which the parent’s marginal tax rate can be used to calculate tax on a child’s net unearned income above the applicable threshold.

This does not mean every dollar of a child’s income is taxed at the parent’s rate. The kiddie tax applies only when the child meets the relevant requirements, and the calculation distinguishes unearned income from earned income. The child may still need to file a separate return, and other rules can affect the final tax owed.

The restored rules also do not mean that a child’s income is simply added to a parent’s return in every case. In many situations, the child files Form 1040, while the parents may be able to elect to report certain income on their own return if the requirements are satisfied. The choice depends on the income involved and the applicable IRS rules.

When the Repeal Took Effect

The SECURE Act’s repeal generally applies to tax years beginning after December 31, 2019. That means the restored method applied automatically for tax years beginning in 2020 and later, subject to the law’s details and subsequent amendments.

Congress also provided a retroactive election for 2018 and 2019. A taxpayer could elect to apply the restored rules to one of those years, or to both years. This option mattered because the TCJA’s trust-rate method had already applied to those tax years when the SECURE Act became law in December 2019.

The election was not a blanket automatic refund. Taxpayers who wanted to use it generally had to follow IRS procedures for the relevant year, which could include filing an amended return. The appropriate action depended on the return already filed, the child’s income, and the IRS guidance in effect. For a return from a prior year, current IRS instructions or advice from a qualified tax professional can help determine whether an adjustment is still available.

Who May Be Subject to the Kiddie Tax

The kiddie tax does not apply to every child or every person claimed as a dependent. Federal law sets conditions involving age, student status, earned income, and financial support. The details can be technical, so a child’s age alone does not settle whether the tax applies.

In general, the rules can apply to a child who has unearned income above the threshold for the tax year and meets one of the statutory age or student tests. These tests generally cover children under 19 and certain full-time students under 24, with additional requirements and exceptions. A child’s earned income, support, and filing circumstances can affect the analysis.

Examples of income that may count as unearned income include:

• Taxable interest from bank accounts or bonds.
• Ordinary dividends and certain other investment distributions.
• Capital-gain distributions and taxable gains from investment sales.
• Taxable scholarships in some circumstances, depending on how the income is treated.
• Some forms of survivor or other benefits, subject to the applicable tax rules.

These examples are not a complete list. Taxable income must be classified correctly, and some payments or benefits have special rules. In particular, the kiddie tax should not be confused with the separate question of whether a payment is taxable for federal income-tax purposes.

How the Calculation Works in Practice

The calculation begins by determining whether the child is subject to the kiddie tax and identifying the child’s net unearned income. The applicable threshold changes over time because tax amounts can be adjusted for inflation. The threshold and the precise calculation should therefore be checked against the IRS instructions for the tax year being filed.

As a simplified illustration, imagine a child with investment income that exceeds the amount sheltered under the applicable rules. The portion within the relevant threshold may be taxed at the child’s rate, while the amount subject to the kiddie tax is calculated using the parent-rate method restored by the SECURE Act. The illustration does not account for deductions, capital-gain rates, other income, or special filing rules.

For federal tax reporting, Form 8615 is commonly used to calculate tax on certain children’s unearned income. The form’s instructions guide filers through the applicable income and parent-rate calculation. Whether Form 8615 is required depends on the child’s facts and the tax-year rules.

In certain cases, a parent may be able to elect to report a child’s qualifying interest and dividend income on the parent’s return rather than filing a separate return for the child. This is a separate election with its own eligibility criteria; it is not the same as the SECURE Act repeal. A family should compare the filing options using the appropriate year’s IRS guidance rather than assume that one option will always produce a lower tax.

SECURE Act Repeal at a Glance

Common Misunderstandings About the Repeal

The SECURE Act Did Not End the Kiddie Tax

The law repealed the TCJA’s calculation change, not the kiddie tax itself. Children who meet the legal conditions can still owe tax on unearned income under the restored rules.

The Parent’s Rate Does Not Apply to All of the Child’s Income

The parent-rate method applies to the portion treated under the kiddie tax rules. It does not automatically make all of a child’s income taxable at the parent’s rate. Earned income and amounts outside the relevant calculation are treated under their own rules.

The Repeal Was Not Automatic for 2018 and 2019

For those two years, taxpayers needed to use the election process if they wanted the restored method to apply. A taxpayer who had already filed a return should check whether a permitted amendment or other procedure remains available.

The Rules Can Differ by Tax Year

Thresholds, forms, and filing instructions can change. A return for an earlier year should be prepared using that year’s rules, not the current year’s figures. The IRS Form 8615 instructions and related publications provide tax-year-specific guidance.

Reliable Sources for Checking the Rules

The statute itself is the primary source for the repeal. Section 501 appears in the SECURE Act, included in Public Law 116-94, available through Congress.gov’s text of Public Law 116-94. The law’s text confirms both the repeal and the provision for applying it to 2018 and 2019 by election.

For filing details, taxpayers can consult the IRS Form 8615 page and the instructions for the form for the relevant tax year. Those materials explain when the form is required and how to calculate the tax. IRS guidance should be reviewed alongside the statute because forms and thresholds may be updated.

For a child’s return, the key practical steps are to identify the tax year, determine whether the child meets the kiddie tax conditions, classify the income, and use that year’s IRS forms and instructions. If an older return is involved, the taxpayer should check the applicable amendment deadlines and any special procedures before filing a correction.