The kiddie tax is a special tax law created in 1986 to address investment and unearned income tax for individuals 18 years of age or under or dependent full-time students under age 24.
The kiddie tax is imposed on individuals under a certain age 18 years old or under and full-time students age 19-24 years old whose investment and unearned income is higher than an annually determined threshold.
This rule is designed to prevent parents from exploiting a tax loophole where their children are given large gifts of stock. In this case, the child would then realize any gains from the investments and would be taxed at a far lower rate compared to the rate the guardians face for their realized stock gains.
Under the kiddie tax law, all unearned income over the threshold is taxed at the parent's marginal income tax rate rather than the child's tax rate. In 2021, unearned income under $1,100 qualifies for the standard deduction.

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