For the 2025 U.S. federal tax year, a 15-year-old dependent child has $6,000 of unearned investment income and no earned income. Under the kiddie tax rules of IRC Section 1(g), how is this income taxed?
- The first $1,350 is offset by the child's own standard deduction, the next $1,350 is taxed at the child's own rate, and the remaining $3,300 is taxed at the parent's marginal tax rate
- All $6,000 is taxed at the child's own individual tax rate, because the kiddie tax only applies to earned income, not unearned income
- All $6,000 is taxed at the parent's marginal tax rate, because the entire amount of unearned income exceeds the $2,700 threshold
- The child is exempt from the kiddie tax rules until age 18, so all $6,000 is taxed at the child's own rate regardless of amount
Why A? And why not the others?
Correct answer: A. The first $1,350 is offset by the child's own standard deduction, the next $1,350 is taxed at the child's own rate, and the remaining $3,300 is taxed at the parent's marginal tax rate
The kiddie tax rules under IRC Section 1(g) apply a layered structure to a dependent child's unearned income for 2025: the first $1,350 is absorbed by the child's own standard deduction and produces no tax, the next $1,350 is taxed at the child's own individual rate, and any unearned income beyond that $2,700 combined amount — here, $6,000 minus $2,700, or $3,300 — is taxed at the parent's marginal tax rate on Form 8615. The option claiming the kiddie tax applies only to earned income is wrong because the rule is specifically designed to target a child's unearned income, such as interest, dividends, and capital gains distributions; a child's earned income from a job is taxed under the ordinary individual rates and is never subject to this rule. The option taxing the full $6,000 at the parent's rate is wrong because only the portion above the $2,700 combined threshold is taxed at the parent's rate; the first $2,700 still benefits from the standard deduction and the child's own bracket. The option describing an age-18 exemption is wrong because the kiddie tax generally applies to dependent children under age 19, and to full-time students under age 24 who do not provide more than half their own support, not merely until age 18.
Source: IRS, 2025 Instructions for Form 8615, Tax for Certain Children Who Have Unearned Income