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Kiddie Tax Rules Professionals Need to Understand
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Join our 250K+ subscribers
Subscribe26 SEP 2025 / ACCOUNTING & TAXES
In 1986, to prevent wealthy families from exploiting a loophole that enabled them to pay their children's tax on gifted stocks, bonds and mutual funds at a lower rate, the U.S. introduced the 'Kiddie Tax'. The system, which is still in place in 2025, imposes a higher tax rate on a child’s unearned income above a certain threshold, to prevent intergenerational income splitting, and was established as a guardrail to stop wealthy families from gaming the tax system. However, it can cause issues for families whose children's investment accounts grow unexpectedly larger.
Picture this: It’s 1986, neon is in, shoulder pads are serious business, and accountants are watching wealthy families pull off a slick move. Parents were “gifting” stocks, bonds, and mutual funds to their kids, letting those tidy gains fall under junior’...
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