Tax Law: Gold-Star Families Get Surprise, Steep Tax Bills
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What are the opening money headlines listeners should know?
Here's your Money Briefing. I'm J.R. Whelan at The Wall Street Journal in New York. The new tax law has a nasty side effect. Families with loved ones who died during military service are facing steep tax bills on benefits. We'll bring in the journal's Laura Saunders to explain in a moment. First, these money and market stories you should know. A report from the Federal Reserve coming later this month will show that one-third of middle-class American adults cannot afford a $400 surprise expense, and about 6% also couldn't manage such a cost even by borrowing money or selling something. The report indicates that while economic security has been improving, many U.S. citizens both in and outside the middle class were still in a position of what the Federal Reserve calls financial fragility.
The Fed, by the way, defines the middle class as households with between $40,000 and $85,000 in annual income in 2018. Competition among private colleges and universities means some steep discounts for incoming freshmen. A survey from the National Association of College and University Business Officers says that tuition discount rates for first-time, full-time freshmen hit a record 52.2% in the current school year. Now, since 2009, the average grant for the first-time freshmen has increased from $10,600 to more than $20,000 this year. And those discounts on average cover about 60% of the tuition and fee costs. Now, in the face of steady or even declining tuition revenue, private colleges have had to innovate and implement new pricing strategies like freezing or slashing costs to students.
And when they graduate, former students will face a working world unlike that in past generations. The Wall Street Journal Management Bureau reports that as automation and outsourcing have taken over some of the more mundane tasks and entry-level positions, employers are looking for people with a short learning curve. and those who have exceptional soft skills, that is the ability to write, listen, and communicate effectively. So companies are reimagining the jobs they're offering to the class of 2019. Recruiting executives have told the journal that companies in the market for fresh talent want to throw people into the fray quickly, and they expect maturity and strong communication skills from the very start.
The journal report also looks at the highest paid, fastest growing jobs in the U.S. over the next decade or so that require a degree. For overall number of jobs available, it's software and app developers.
What does the Fed report reveal about middle‑class financial fragility?
For jobs requiring a master's degree, it's nurse practitioners. And for jobs requiring a doctoral or professional degree, the leader is health teacher.
The new tax overhaul law put more money in some taxpayers' pockets and resulted in more paperwork for others, but it also has had an unexpected and unwelcome effect on many families who've lost active duty service members, often referred to as gold star families. And Wall Street Journal tax reporter Laura Saunders is here with some details. So, Laura, the culprit here is a revision to the so-called kiddie tax on how unearned income is taxed?
Yes, this is one of those things that happens with tax law. In 1986, Congress passed a so-called kiddie tax, and it taxes unearned income of children. at their parents' rates. This was because wealthy people could take, say, some stock and give it to a child. The child could sell it, pay tax at his rates, and then buy a sports car or pay tuition or something. And this was felt to be unfair. It was like a kind of a gimmick for the wealthy. So they changed the law to make it that all the children's income under about age 24, and it's unearned income. This is not babysitting wages or camp council or anything like that.
And that was the original intent of the kiddie tax.
That was, yes, and it was taxed at the parent's rate. Now, what happened was that in the tax overhaul of 2017, they changed how that tax is calculated because they wanted to make it simpler. It was complex for various reasons, and you can read about it in my other Forbes stories, but it was complex.
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