Kiddie Tax Calculator: When Your Child's Investment Account Gets Taxed at YOUR Rate

Why a custodial account isn't a tax shelter

We ran a $15,000 custodial brokerage account through the calculator for high-bracket parents. Intuition says: the child has no other income, so this should be taxed at the child's low bracket. The kiddie tax rules say otherwise — once unearned income clears $2,700, the excess is taxed at the parent's marginal rate, not the child's. For a household in the 37% bracket, that's a dramatically different outcome than the "shift income to the kids' bracket" strategy people sometimes assume still works.

How the math works

The first $1,350 of a child's unearned income is tax-free (the dependent's unearned-income standard deduction). The next $1,350 — from $1,350 to $2,700 — is taxed at the child's own rate. Everything above $2,700 total is taxed at the parent's marginal rate, calculated as if it were stacked on top of the parent's own income.

What this tool doesn't model: the "kiddie tax" only applies to unearned income (interest, dividends, capital gains) — wages from an actual job are always taxed at the child's own rate regardless of amount. It also doesn't distinguish ordinary-income rates from the lower qualified-dividend/long-term-capital-gains rates within the middle band — you set that rate yourself based on the income type.

Math runs locally. Inputs never leave your browser.Source on github.

Where the "shift income to kids" strategy still works

• Small accounts stay entirely below the threshold.A custodial account generating under $2,700/year in unearned income owes little to no kiddie tax regardless of the parent's bracket — the strategy still works at modest scale, just not at large scale.
• 529 plans aren't subject to the kiddie tax at all.Growth inside a 529 education savings account is tax-deferred and (for qualified withdrawals) tax-free — it never generates the unearned income this calculation applies to in the first place.
• The child's own earned income isn't affected.Wages from an actual job (including reasonable pay from a family business) are taxed at the child's own bracket, no kiddie tax rules involved.
• Once the child is filing independently as an adult.The kiddie tax generally stops applying once the child is no longer a dependent under the relevant age/support tests (full-time students up to 23 with limited earned income are still covered, but not beyond that).

What to actually do with this number

1. Check whether your child's account is generating unearned income above $2,700/year — below that, kiddie tax barely matters.
2. Consider a 529 plan for education-earmarked savings instead of a taxable custodial account, since it sidesteps this calculation entirely.
3. If the account is already large, consider tax-efficient holdings (broad index funds with low turnover, municipal bonds if appropriate) to minimize the unearned income the kiddie tax applies to.
4. If the child has earned income from an actual job, that portion isn't affected — don't conflate it with unearned income in your planning.
5. Confirm the exact filing requirement and rate on the middle band with a tax professional, especially for a first-time Form 8615 filing.