"Kiddie Tax" on Fellowship

[DesertWolverine]

Hi all,

I received a full fellowship for this academic year. I was doing my taxes for 2018 and noticed that, as a dependent student, my unearned income (which my fellowship counts as) over $2100 will be taxed at up to 35% due to something called the "kiddie tax"!!! This seems extremely unreasonable for a graduate student, so I wanted to see if anyone has run into this situation before and can offer any advice.

Also, after some searching online, I read that the "kiddie tax" rates have been changed started in the 2018 tax year so that they are no longer tied to your parents' tax bracket, but are instead taxed at full trust/estate rates.

Edited January 5, 2019 by DesertWolverine

[MarineBluePsy]

It might be a good idea to contact a qualified tax professional and have them review your circumstances.  If you have already done that and are still concerned there is nothing wrong with you getting a second opinion.  

[DiscoTech]

Presumably there is some advantage to your parents claiming you as a dependent on their return. If this advantage is less than the tax you owe, it might be worth revisiting your filing status. 

[Emily Roberts]

I create resources on taxes for grad students and postdocs, and the Kiddie Tax question has bugged me for several years. In 2018, I hired a tax firm to do some research for me, and this was one of the questions I asked them. Answer: Yes, the Kiddie Tax does apply for fellowship income in certain situations (regardless of your dependent status). I am going to write a detailed article on this, but it won't be published until next month probably. Is there anything further I can help you with, aside from confirming that this is a (terrible, unfair) thing? I think the only way to avoid it is proper planning in advance, which of course is no help to you, but I'm hoping that my article may help some future students avoid it.

[DesertWolverine]

Apologies for resurrecting an old thread, but it seems they changed the kiddie tax rules back to the old system and are retroactively applying these changes to previous years:

https://www.acenet.edu/News-Room/Pages/Congress-Fixes-Kiddie-Tax-Mistake-Approves-Other-Higher-Education-Tax-Provisions.aspx