600 weekly unemployment and kiddie tax

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986racer
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600 weekly unemployment and kiddie tax

Post by 986racer » Sat Aug 01, 2020 11:57 am

My teenage daughters are eligible for the 600/week pandemic unemployment. I'm guessing that unemployment shows up as unearned income. They are of the age that they fall under the kiddie tax rules.

Does this mean that the 600/week payments will be taxed at my tax rates? If so, won't almost teenager who takes these payments have the same situation?

In the actionable part of this, I've been gifting stock to them for them to sell to realize capital gains so that they had unearned income to use to take advantage of the AOTC. If this 600/week counts as unearned income, it seems like I need to not have them realize any capital gains this year.

the way
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Re: 600 weekly unemployment and kiddie tax

Post by the way » Sat Aug 01, 2020 1:03 pm

I see it the same way. Your kid should receive a 1099-G next year and the first 1100 is tax free, the next 1100 is taxed at 10%, and then above that is taxed at your marginal rate.

If they also have some earned income (over 1100 but less than the standard deduction-350), then the earned income is entirely tax free, and the unemp gets taxed this way: first 350 tax free, next 1850 at 10%, then the rest at your rate.

Depending on which state you're in, there may be state income taxes too.

[Off-topic comment removed by Mod Misenplace]

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Misenplace
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Re: 600 weekly unemployment and kiddie tax

Post by Misenplace » Sat Aug 01, 2020 3:14 pm

You have a bunch of moving parts going on here.
First, the kiddie tax is no longer based upon your income, but on trust rates.
Here is a good thread on the topic Tax gain harvesting UTMA accounts?. SpiritRider gives good guidance there.

Second, if they qualify as your dependents (you provide more than half of their support), then they don't get to claim the AOTC. Only you can claim it, and if your income phases you out, you are out of luck.

jj
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Re: 600 weekly unemployment and kiddie tax

Post by jj » Sat Aug 01, 2020 3:26 pm

Misenplace wrote:
Sat Aug 01, 2020 3:14 pm
First, the kiddie tax is no longer based upon your income, but on trust rates.
This was reversed at the end of 2019 for tax year 2020 onward. Taxpayers can choose to follow the old or the new rules for 2018 and 2019.

https://www.journalofaccountancy.com/is ... tored.html
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Misenplace
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Re: 600 weekly unemployment and kiddie tax

Post by Misenplace » Sat Aug 01, 2020 3:36 pm

jj wrote:
Sat Aug 01, 2020 3:26 pm
This was reversed at the end of 2019 for tax year 2020 onward. Taxpayers can choose to follow the old or the new rules for 2018 and 2019.

https://www.journalofaccountancy.com/is ... tored.html
Thanks, good to know.

the way
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Re: 600 weekly unemployment and kiddie tax

Post by the way » Sat Aug 01, 2020 3:44 pm

Misenplace wrote:
Sat Aug 01, 2020 3:14 pm
Second, if they qualify as your dependents (you provide more than half of their support), then they don't get to claim the AOTC. Only you can claim it, and if your income phases you out, you are out of luck.
This is wrong as well, unfortunately. Dependent can claim AOTC (if parent does not claim the dependent), it's just not refundable.

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986racer
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Re: 600 weekly unemployment and kiddie tax

Post by 986racer » Sat Aug 01, 2020 5:50 pm

the way wrote:
Sat Aug 01, 2020 3:44 pm
Misenplace wrote:
Sat Aug 01, 2020 3:14 pm
Second, if they qualify as your dependents (you provide more than half of their support), then they don't get to claim the AOTC. Only you can claim it, and if your income phases you out, you are out of luck.
This is wrong as well, unfortunately. Dependent can claim AOTC (if parent does not claim the dependent), it's just not refundable.
Yes, this is unfortunately not well enough known. If the parent does not claim the dependent, then the dependent can claim AOTC but can not get any refund on it.

As was said, this added the moving part of me gifting appreciated stock to my daughters in order for them to have (unearned) income so that it can be offset by AOTC.

Now, with the COVID payments, there is going to be too much unearned income (I know, first world problems...) for at least one of the daughters. Fortunately, there has been no stock sales for the second daughter yet.

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Misenplace
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Re: 600 weekly unemployment and kiddie tax

Post by Misenplace » Sun Aug 02, 2020 1:14 pm

the way wrote:
Sat Aug 01, 2020 3:44 pm
Misenplace wrote:
Sat Aug 01, 2020 3:14 pm
Second, if they qualify as your dependents (you provide more than half of their support), then they don't get to claim the AOTC. Only you can claim it, and if your income phases you out, you are out of luck.
This is wrong as well, unfortunately. Dependent can claim AOTC (if parent does not claim the dependent), it's just not refundable.
Ah, thanks for correcting me. I had been trained for VITA that we cannot take the credit on the student's return if the student can be claimed by the parent (Publication 4491 p. 23-1 (and the software programs I've tried drives this too), but I see now that is in conflict with Publication 970 p.20.

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Eagle33
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Re: 600 weekly unemployment and kiddie tax

Post by Eagle33 » Sun Aug 02, 2020 7:34 pm

Misenplace wrote:
Sun Aug 02, 2020 1:14 pm
the way wrote:
Sat Aug 01, 2020 3:44 pm
Misenplace wrote:
Sat Aug 01, 2020 3:14 pm
Second, if they qualify as your dependents (you provide more than half of their support), then they don't get to claim the AOTC. Only you can claim it, and if your income phases you out, you are out of luck.
This is wrong as well, unfortunately. Dependent can claim AOTC (if parent does not claim the dependent), it's just not refundable.
Ah, thanks for correcting me. I had been trained for VITA that we cannot take the credit on the student's return if the student can be claimed by the parent (Publication 4491 p. 23-1 (and the software programs I've tried drives this too), but I see now that is in conflict with Publication 970 p.20.
As a fellow VITA, I to am challenged with the nuances of governmental verbiage! "They cannot be claimed as a dependent on someone else’s tax return" pub4491 p 23-1
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.

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