June 8, 2018

Exempt Indian Country From The 'Kiddie Tax'

Nicole M. Elliott | Philip Baker-Shenk | Kayla Gebeck Carroll | Kenneth W. Parsons

Partners Nicole Elliott and Philip Baker-Shenk co-wrote an article for Law360 with Public Affairs Advisor Kayla Gebeck and Senior Counsel Kenneth Parsons about the modifications Congress made to the 'Kiddie tax' with the passing of the Tax Cuts and Jobs Act of 2017.

The tax—nicknamed as such because, although it was revised to include young people up to 23, it originally only applied to children under age 14—first became part of the Internal Revenue Code in 1986; it's purpose was to stop wealthy parents from lowering their taxes by putting income-producing investment property in their children's names. Prior to the new tax law, the Kiddie tax was generally applied to a child’s unearned income (i.e., income other than wages or compensation for services) over a threshold amount and was taxed at the rate the child’s parent would pay if it were the parent's income regardless of whether the child was claimed as a tax dependent by the parent.

The article outlines how the Tax Cuts and Jobs Act changes the Kiddie tax, and specifically focuses on its negative impact on Indian Country. The authors also suggest a new subparagraph that could be added to the United States Code to help mitigate the problem. If such a fix were made, the amounts received by younger tribal members exempt from the law would remain taxable as ordinary income, allowing Native American young adults more possibilities in life.

READ: Exempt Indian Country From The 'Kiddie Tax'

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