Reps. Estes and Moore Introduce the Tax Fairness for Youth Act of 2019

Statement

Congressman Ron Estes (R-KS) and Congresswoman Gwen Moore (D-WI) introduced the Tax Fairness for Youth Act of 2019 today. This bill would protect young recipients of military survivor benefits, first responder survivor benefits, tribal distributions, scholarship and fellowship grants, Alaska permanent fund dividends, and Social Security benefits from higher taxes resulting from the Tax Cuts and Jobs Act of 2017.

"The Tax Fairness for Youth Act makes common sense reforms to our tax code to support some of the most vulnerable members of our society including young recipients of military survivor benefits, first responder survivor benefits and tribal youth disbursements," said Congressman Estes. "This legislation builds on progress to improve provisions of the Tax Cuts and Jobs Act by ensuring unearned income of children like benefits and scholarships are not taxed at unfair rates, providing young people and students more opportunities to save money and pursue education. I look forward to working with my colleagues on the Ways and Means Committee to advance this bipartisan bill in Congress."

"We have special tax rules on unearned income of children and young adults to prevent wealthy families from engaging in tax planning to artificially lower their tax burden. However, these rules were written too broadly, affecting payments that are clearly not made to evade taxation. This inequity was heightened after the tax changes of 2017," said Congresswoman Moore. "For these families, it is critical that Congress act quickly to provide relief. While the House has already acted to try and provide some relief, it only partially addresses the underlying problem and I am pleased to introduce this legislation that will remedy the problem completely."

"The bill would limit the tax liability of those students, who range from individuals on need-based academic scholarships to student scholarship athletes of modest means. As the bill makes clear, Gold Star families and others in addition to college students are also adversely impacted by the amended kiddie tax. We appreciate your attention to this issue and stand ready to work with you to ensure that Congress passes legislation as soon as possible to fix this unfortunate mistake in the TCJA," said Terry W. Hartle, Senior Vice President, Government Relations and Public Affairs, American Council on Education.

"The modifications to the "Kiddie Tax' have had unintended consequences for Indian Country, especially for young Native Americans. It has greatly increased taxes paid by these young people and the law is structured in such a way that struggling Native students are unfairly incentivized to drop out of school. These changes make a much-needed fix to ensure that young tribal members have the resources they need as they seek education and begin their lives," said Chairman Ned Daniels Jr., Chairman, Forest County Potawatomi.

Background Information

Prior to the Tax Cuts and Jobs Act of 2017 (TCJA), unearned income of children and young adults was subjected to the parental tax rate if the parental tax rate was higher than the child's tax rate. Moreover, since 2007, these rules have applied to children who are 18-years-old or who are full-time students between the ages of 18 and 24, disincentivizing low-income students from attending college or pursuing other higher-educational opportunities because the recipients would be subject to a higher tax rate on their unearned income as full-time students. The TCJA modified these tax rules by sharply increasing the effective tax rates on unearned income of children and young adults by subjecting this income to the tax rates of trusts and estates (i.e., up to 37%) between 2018 through 2025.

These changes resulted in a particularly harsh effect on certain populations, including children of Gold Star families and Native Americans who receive military and Veteran Affairs survivor benefit plan payments or tribal payments, because their parents are generally subject to lower rates than the trust and estate rates.

Congresswoman Moore and Congressman Estes introduced HR 2810, the Tax Fairness for Tribal Youth Act of 2019 in May, which received broad bipartisan support. Congresswoman Moore and Congressman Estes remain united in their commitment to providing broader relief to Gold Star families, the families of fallen first responders, tribal members and other vulnerable groups.

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