Income Thresholds (2025)

The first $1,350 of a child's unearned income is tax-free (covered by the standard deduction) The next $1,350 is taxed at the child's own rate — typically the lowest bracket Unearned income above $2,700 is taxed at the parent's marginal tax rate These thresholds are adjusted annually for inflation — always confirm the current year's numbers

Who Is Subject to the Kiddie Tax?

Children under 19 at year-end who have unearned income above the threshold Full-time students under age 24 whose earned income does not exceed half their support The rule does not apply once a child turns 19 (or 24 for students) — they file at their own rate Married children who file a joint return are generally exempt from the kiddie tax

Impact on UGMA and UTMA Accounts

Custodial accounts (UGMA/UTMA) are a common way to save and invest for children Investment earnings inside these accounts count as the child's unearned income Large custodial account balances can generate enough income to trigger the kiddie tax Once the child reaches the age of majority, the assets belong to them — with no restrictions on use

Kiddie Tax Rules: What Parents and Grandparents Need to Know

Curated by: Rubric Advisors

1 / 7

What Is the Kiddie Tax?

A federal tax rule that taxes a child's unearned income (dividends, interest, capital gains) at the parent's marginal rate
Designed to prevent parents from shifting investment income to children in lower tax brackets
Applies to children under age 19, or under age 24 if they are full-time students
Only affects unearned income — a child's wages from a job are taxed at the child's own rate

Strategies to Minimize the Kiddie Tax

Invest in municipal bonds — interest is federally tax-exempt and does not count as taxable unearned income
Hold growth-oriented stocks that pay little or no dividends, deferring gains until the child is older
Consider 529 plans instead — earnings grow tax-free and are not subject to the kiddie tax
Time asset sales so capital gains are realized after the child ages out of kiddie tax rules

Filing Requirements and Form 8615

Form 8615 is required when a child's unearned income exceeds the kiddie tax threshold
Parents can alternatively elect to report the child's income on their own return using Form 8814
Form 8814 is simpler but may push the parent into a higher bracket or trigger other phase-outs
Keep detailed records of cost basis for custodial account investments to ensure accurate reporting

Planning Considerations for Families

Coordinate gifting strategies with grandparents to avoid unexpectedly large unearned income for children
Review custodial account allocations annually — rebalancing into tax-efficient holdings can reduce the tax hit
Compare the kiddie tax cost against alternatives like irrevocable trusts or 529 contributions
Work with a tax advisor before making large gifts to minors — the kiddie tax can erode the intended benefit

Direct Indexing Our Approach

Try Our Free Tools

Fee Impact Calculator Growth Visualizer

What Is the Kiddie Tax?

Income Thresholds (2025)

Who Is Subject to the Kiddie Tax?

Impact on UGMA and UTMA Accounts

Strategies to Minimize the Kiddie Tax

Filing Requirements and Form 8615

Planning Considerations for Families

Related Topics

UGMA and UTMA Custodial Accounts: Investing for Children

Earned Income vs Unearned Income

529 Plan Tax Strategies

What Is the Kiddie Tax?

Income Thresholds (2025)

Who Is Subject to the Kiddie Tax?

Impact on UGMA and UTMA Accounts

Strategies to Minimize the Kiddie Tax

Filing Requirements and Form 8615

Planning Considerations for Families

Related Topics

UGMA and UTMA Custodial Accounts: Investing for Children

Earned Income vs Unearned Income

529 Plan Tax Strategies