Kiddie tax and self support

[bruehaus]

Colleague and myself are in disagreement about the new kiddie tax rules. Child is a 19 yr old FT student (for 2008). Earnings are $12000. Total cost of support is $20000. If the child banks the $12K and does not provide any money for their own support…are they exempt from the kiddie tax rules? My colleague thinks so, since child earned more than half the amount of total support. I think congress meant this to be the same as the qualified child test, which says child must not provide more than half of their own support. The code is unclear on this. Any thoughts?

[Luis Mopeo]

Actually the code is pretty clear. The threshold is 1/2 earned income, as defined in section 911(d)(2). It's not the same rule as for dependency.

[bruehaus]

Define support

The code says "whose earned income...does not exceed one-half of the amount of the individual's support (within the meaning of section 152(c)(1)(D)..." That section talks about not providing more than one-half of one's own support. That's the basis of my stance. They really were talking about a qualifying child.

[Luis Mopeo]

The code says "whose earned income...does not exceed one-half of the amount of the individual's support (within the meaning of section 152(c)(1)(D)..." That section talks about not providing more than one-half of one's own support. That's the basis of my stance. They really were talking about a qualifying child.

I see the conflict you’re seeing. Here’s the excerpt:


“...(II) whose earned income (as defined in section 911(d)
(2)) for such taxable year does not exceed one-half of the
amount of the individual's support (within the meaning of
section 152(c)(1)(D) after the application of section 152(f)
(5) (without regard to subparagraph (A) thereof)) for such
taxable year,...”

Section 152(c)(1)(D) reads:

“who has not provided over one-half of such individual’s own support for the calendar year in which the taxable year of the taxpayer begins.”

You’re right. That doesn’t make sense as written.

The technical explanation of the legislation prepared by the Joint Committee on Taxation states:

“The provision expands the kiddie tax to apply to children who are 18 years old or who are full-time students over age 18 but under age 24. The expanded provision applies only to children whose earned income does not exceed one-half of the amount of their support.”

Very weird. But even with the cryptic nature of the legislation, it still looks like they’re talking about the student’s earned income compared to total support, not the student’s contribution to his or her own support.

You can get the legislation and the Joint Committee report by following the “Updates,” link.

[Bees Knees]

Simply break the words in the legislation down into their parts:

1) The child’s earned income (as defined in section 911(d)(2)

2) cannot exceed one-half of the child’s support (as defined in section 152(c)(1)(D) after the application of section 152(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year.

As Luis pointed out, the amount of the child’s earned income used for support is irrelevant. The new law simply states that the child’s earned income cannot exceed 50% of total support, regardless of what funds were used to support the child, and regardless of whether or not the child used the earned income for support.

[New York Enrolled Agent]

Simply break the words in the legislation down into their parts:

1) The child’s earned income (as defined in section 911(d)(2)

2) cannot exceed one-half of the child’s support (as defined in section 152(c)(1)(D) after the application of section 152(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year.

Bees - are you sure the word "cannot" is appropriate based on the legislation language? To have the kiddie tax apply, the earned income "does not". Not trying to nitpick - Just doesn't read the same (maybe, its only me )