The Unofficial SMART Scholarship Forum

For those of you who filed IRS Form 8615 for 2018 and 2019 and were socked with the exorbitant Estate and Trust tax rate table, the Taxpayer Certainty and Disaster Tax Relief Act of 2019 RETROACTIVELY changed the rules so you can pay the tax at your parents marginal tax rate. To take advantage of this, you will need to file amended returns.

For 2018, see the instructions in https://www.irs.gov/pub/irs-prior/i8615--2018.pdf

For 2019, see the instructions in https://www.irs.gov/pub/irs-prior/i8615--2019.pdf

In both cases check out the "What's New" section at the beginning of these documents.

Background, the Form 8615 tax is known as the "Kiddie Tax" and is for unearned income for dependents. Unfortunately unearned income includes the taxable portion of scholarships and stipends. IRS rules make it nearly impossible for a full-time student under the age of 24 to be considered independent and avoid this tax.

Note instructions in the forms 8615 for 2018 and 2019 are not clear and the "Tentative Tax Based on the Tax Rate of Your Parent Worksheet" line 4 tax should be calculated using Schedule D Tax Worksheet if the parents used that worksheet to calculate their taxes. This should result in a lower tax. Although the instructions on the latest from 8615 are not clear, the instructions in Publication 929 (2019) are.

See https://www.irs.gov/pub/irs-prior/p929--2019.pdf for details, note the 2018 version says see the 2019 document for instructions for form 8615 for 2018.

Note some of the tax preparation programs are not doing this calculation correctly.