Find out whether your child's investment income is taxed at your marginal rate, how much lands above the 2025 threshold, and what the kiddie tax actually costs your family.
| Scenario | Unearned Income | Parents' Rate | Kiddie Tax? | Tax on Child's Return |
|---|---|---|---|---|
| Under the threshold | $2,500 | 35% | No | $250 |
| Modest portfolio | $4,200 | 24% | Yes — $1,500 taxed at 24% | $630 |
| Large custodial account | $26,000 | 35% | Yes — $23,300 at 35% | $8,425 |
| Child with a summer job | $8,000 | 24% | Yes — $5,300 at 24% | $1,596 |
The table is illustrative. Use the calculator above for your exact numbers — the result depends on the parents' marginal bracket and how much of the child's income is earned versus unearned.
A child's investment income is not automatically taxed at the parents' rate. Congress built a two-tier system so a family cannot shunt a stock portfolio into a minor's name and collect the 0% and 10% brackets rent-free.
First tier — the child's allowance. The first $1,350 of unearned income is offset by the standard deduction and costs nothing. The next $1,350 is taxed at the child's own marginal rate, usually 10%. Because the two figures are equal in 2025, the calculator uses a single $2,700 threshold: unearned income at or below $2,700 escapes the kiddie tax entirely.
Second tier — the parents' rate. Every unearned dollar above $2,700 is stacked on the parents' taxable income and taxed at their top marginal rate, which can reach 37%. That stacked slice is also exposed to the 3.8% net investment income tax when the parents' modified AGI crosses $250,000, and to the 0%/15%/20% preferential capital-gains rates. This is the "kiddie tax" most people mean.
Form 8615, "Tax for Certain Children Who Have Unearned Income," must be attached to the child's return when three conditions all hold: the child has more than $2,700 of unearned income, the child is required to file a return, and the child is under 19 at year-end, or under 24 and a full-time student, or permanently disabled at any age.
A married child filing jointly is exempt. A child who supplies more than half of their own support with earned income is exempt. And a parent may elect to report the child's interest and dividends on the parent's own return using Form 8814 when the child's income is only from interest and dividends and stays under $13,500 — a shortcut that avoids a separate return but taxes the whole amount at the parents' rate.
| Strategy | What It Does | Watch Out For |
|---|---|---|
| Keep unearned income under $2,700 | Zero kiddie tax; child pays 0% or 10% | Hard to control once a portfolio compounds |
| Hold growth, not income | Unrealized gains are not taxed; no municipal-bond interest either | Concentrated risk; selling later still triggers gains |
| Use a 529 plan | Tax-free growth for education; contributions leave the child's name | Non-qualified withdrawals are taxed plus a 10% penalty |
| Roth IRA for earned income | The child's own wages can fund a Roth that grows tax-free | Requires real earned income, up to $7,000 in 2025 |
| Timing capital gains | Realize gains in a year the parents' bracket is lower | Wash-sale and estimated-tax interactions |
Municipal bonds deserve a specific caution: their tax-free interest still counts toward the $2,700 threshold even though it is not taxed, so a muni-heavy custodial account can push a child over the line without generating taxable income.
⚠️ Important: This calculator estimates the kiddie tax using 2025 federal thresholds ($1,350 standard deduction and $1,350 additional amount) and simplified bracket bands. It does not account for state income tax, the net investment income tax, the alternative minimum tax, or the 0%/15%/20% capital-gains rate structure. Form 8615 requires allocating the parents' tax across the child's return, which can produce a slightly different figure. This is not tax, legal, or accounting advice - consult a qualified tax professional about your specific situation.