The tax on unearned income of children under the age of 19 (or full time students under age 24) that exceeded $2,100 was taxed at their parents tax rate.

The Tax Cuts and Jobs Act modifies the kiddie tax to effectively apply the estates’ and trusts’ ordinary and capital gains rates to the net unearned income of a child. The child’s earned income is taxed under the normal tax brackets and rates. But, the child’s unearned investment income that exceeds $2,100 will be taxed as follows:

■ Up to §2,550 – 10%

■ §2,550 to §9,150 – 24%

■ §9,150 to §12,500 – 35%

■ Over §12,500 – 37%

Applying the estate and trust tax rates under the kiddie tax rules may result in a higher tax bill if the child’s investment income is significant.

In addition to higher tax rates for children with significant investment income, the more favorable capital gains rates are lost. Under TCJA the maximum amount of capital gains taxed at a zero rate can’t exceed the child’s earned taxable income + $2,600 for 2018 and the maximum amount of capital gains taxed at a 15% rate can’t exceed the child’s earned taxable income + $12,700 for 2018.