Tax Legislation Update – House Passes Retirement Bill and Includes Return of the Pre-TCJA “Kiddie Tax”

Retirement bill passes in the House

In our recent article on the 2019 tax outlook, we addressed several tax pieces of legislation and their prospects for passage in 2019. On May 23, 2019, one of these items took a step forward as the House passed its retirement bill, the “Setting Every Community Up for Retirement Enhancement” (SECURE) Act of 2019. The bill passed with wide bi-partisan support.

The House made the following two changes to SECURE, which passed unanimously by the Ways & Means Committee:

1. First, a provision related to Section 529 plans was removed. It’s important to keep in mind that this change could complicate finalizing the bill in the Senate.
2. Second, a separate item was added to SECURE that was initially designed to provide tax relief to survivor benefits paid to the child of a military service member killed in service or of the death of a veteran. The child of a fallen member of the Armed Forces could have been subject to a higher tax rate on receipt of these benefits. But as this measure moved toward a final vote in the House, it was completely re-worked. You may recall that the Tax Cuts and Jobs Act (TCJA) revamped the “kiddie tax.” The TCJA change resulted in the unearned income of a child to be taxed at the tax rates applicable to trusts/estates rather than at the tax rates of the child’s parents. The House decided to remove this TCJA kiddie tax change and revert to the prior rules that taxed this unearned income at the parent’s tax rates. This change applies in 2019, but taxpayers could elect to apply for 2018. The Senate was proposing similar tax relief for military survivor benefits, so it may support this revision.

Legislative Outlook

SECURE now moves to the Senate where it also has broad support. The Senate was working on its own retirement legislation this year that contained many of the same provisions included in the House version. Instead of finishing its own bill, the Senate could perhaps vote directly on SECURE; however, the removal of the Section 529 feature could create some legislative challenges.

Nonetheless, retirement legislation is moving forward and will likely be passed soon. The measure for revising the kiddie tax might also move separately from SECURE and could be enacted soon (although not finalized yet).

We will continue to track these legislative developments. Please contact your Sikich tax advisor with any questions.