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1 1 (May 3, 2019)

handle is hein.crs/govzol0001 and id is 1 raw text is: Congressional _____ ~Research Service ..... .. hforming the !egistatwve debate since 1914 The Kiddie Tax and Military Survivors' Benefits May 3, 2019 Some military families have discovered that they owe higher taxes for 2018 on distributions from their military survivors' benefits than they had in previous years. This change in tax treatment is related to temporary changes to the kiddie tax in the 2017 tax revision (P.L. 115-97). Military Survivor Benefits to Children Retired servicemembers may elect to provide their spouses and/or children with up to 55% of their pension following the member's death as part of a program called the Survivor Benefit Plan (SBP) (10 U.S.C. 1448). In 2001 (P.L. 107-107), Congress expanded eligibility for this benefit to dependents of servicemembers who die while in active service. The Department of Defense (DOD) distributes SBP payments as a taxable monthly annuity for the lifetime of a surviving spouse and up to age 18 or 22 for most surviving children. Due to a dollar-for-dollar offset with another federal benefit for some surviving spouses called Dependency and Indemnity Compensation (DIC), it is often more financially beneficial for the family to elect children as the SBP beneficiaries to avoid this offset. As with SBP, survivors of servicemembers who die on active duty are also automatically eligible for DIC. As of September 30, 2017, DOD reported 2,699 dependent children receiving SBP annuities due to a parent's death in retirement and an additional 6,916 receiving an annuity due to a parent's death during active service. The amount of the SBP annuity varies and depends on the servicemember's retired pay base at the time of death. On average, a survivor receives about $1,050 per month from SBP alone (not including other benefits, such as Social Security). What Is the Kiddie Tax? The kiddie tax was first enacted as part of the Tax Reform Act of 1986. Its purpose was to prevent wealthy parents from reducing their own tax liability by creating investment accounts and trusts in the names of their children, who were typically subject to lower tax rates. Generally, a child must file a separate return to report his or her income (like any other taxpayer). Children with unearned income above $2,100 for 2018 ($2,200 for 2019) may be subject to the kiddie tax. Congressional Research Service https://crsreports.congress.gov IN11112 CRS INSIGHT Prepared for Members and Committees of Congress

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