SURPRISING TAX BILL FOR SOME
Surprising tax bill for some. After Mr. Heading’s death, his sons began getting an annual survivor benefit paid to many families who have lost active duty service members–often called Gold Star families. Last year, that benefit was about $29,300. But his son, age 6, owed nearly $7,000 in federal taxes on it. “At first I was stunned, and then angry. My child’s tax rate is high than mine, says Ms. Headings, a Social Worker in Virginia Beach. Surprising tax bill for some.
In past years, her son’s tax bill would have been far lower. But a 2017 change to the so-called Kiddie Tax often boosts rates on “unearned” income received by children of middle and low income families–including her son. Ms. Heading is now scrambling to spend $500 less per month due to the tax on her son’s benefit. And her family isn’t alone. The kiddie tax is a decades old law meant to prevent the wealthy from shifting assets to children in order to take advantage of their lower income tax rates.
But a revisions to the tax in the big overhaul passed by Congress in 2017 is raising taxes on as many as 10,000 children of deceased service members who earn an average annual benefit of about $13,000, according to Department of Defense data provided by the Tragedy Assistance Program for Survivors, or TAPS. It’s a nonprofit group for families who have lost service members that’s working to change the law. And the new rules reach well beyond military families. They can also raise taxes on children from lower income families who receive income after a tragedy and pose a threat to millions of students receiving college financial aid. If you have a back tax debt and need help, call this 35 year old Tax Resolution firm for a Free Consultation, and ask about the IRS Fresh Start Program, but also inquire about all other avenues of Tax Relief, as the Fresh Start initiative doesn’t have every option in the IRS Code available to taxpayers. The only way you will make the correct choice for your family, your relationships, your job, and or your business, is to know every option available to you.
Congress passed the Kiddie Tax in 1986. Until then a parent could, say, give a child appreciated stock and the child could sell it, pay tax at a lower rate, and use the proceeds to pay for college tuition or a Corvette.