What is the kiddie tax and when does it apply to my child's income?

The kiddie tax prevents parents from shifting investment income to children to exploit their lower brackets. It applies to a child's unearned income — interest, dividends, capital gains — not money they earn from a job. In 2025, a child's first $1,350 of unearned income is tax-free, the next $1,350 is taxed at the child's rate, and anything above roughly $2,700 is taxed at the parents' marginal rate. It generally applies to children under 19 (or full-time students under 24) who don't provide more than half their own support. So a custodial (UGMA/UTMA) account with sizable dividends can trigger the parents' high rate. Earned income from a job is taxed at the child's own low rates, which is why a Roth IRA funded from a teen's wages is so efficient. Plan funding for kids at wealthserene.com/tools/college-planner.