UGMA/UTMA Kiddie Tax Calculator

How it works

2025: first $1,350 of unearned income tax-free; $1,350–$2,700 at the child’s rate (10%, 0% LTCG); above $2,700 at the parents’ marginal rates, retaining the income’s character

Custodial accounts under the Uniform Gifts/Transfers to Minors Acts let parents and grandparents invest in a child’s name, and the “kiddie tax” exists to stop families parking income-producing assets with children to use their low brackets. For 2025 the first $1,350 of a child’s unearned income is sheltered by their standard deduction, the next $1,350 is taxed at the child’s own rates (10%, or 0% for qualified dividends and long-term gains), and everything beyond $2,700 is taxed as if the parents had earned it. It applies to children under 18, and to 18-year-olds and full-time students under 24 whose earned income is not more than half their support. Tax-gain harvesting up to the $2,700 threshold each year is the classic way to use the allowance; a 529 avoids the tax entirely for education spending.

Worked example

$1,800 of dividends plus a $1,500 realised long-term gain ($3,300 total) with parents in the 24%/15% brackets: $1,350 free, $1,350 in the child’s band (about $74), $600 at the parents’ rates (about $119) — roughly $193 in total, or 5.9% of the income, versus $657 in the parents’ hands.

Frequently asked questions