Kiddie Tax
Definition
A tax rule that applies the parent's marginal tax rate to a child's unearned income (interest, dividends, capital gains) above a threshold. For 2025, the first $1,300 of a child's unearned income is tax-free, the next $1,300 is taxed at the child's rate, and amounts above $2,600 are taxed at the parent's rate. The rule applies to children under 19 (or under 24 if a full-time student) who do not provide more than half their own support.
Example
Your 16-year-old has $5,000 in investment income. The first $1,300 is tax-free, the next $1,300 is taxed at the child's low rate, and the remaining $2,400 is taxed at your marginal rate of 32%.