UTMA Accounts: Tax Filing and Kiddie Tax Rules

If your child has UTMA accounts that are invested, they may be required to file a tax return and pay Kiddie Tax on the investment income . In this video, we break down exactly when a minor needs to file a tax return, how the Kiddie Tax applies, and why investment income in a child’s name might still get taxed at the parents’ rate. You’ll learn: ✅ When a child’s investment income triggers a tax filing ✅ How UTMA and UGMA accounts are taxed under IRS rules ✅ The Kiddie Tax thresholds and how they affect your family’s tax return ✅ How gifts into UTMA accounts interact with the $19,000 annual gift exclusion We answer common parent questions like: ❓ “Does my child really need to file their own tax return?” ❓ “Why is my child’s investment income taxed at my rate?” ❓ “What Kiddie Tax planning moves can we make before next tax season?” If you’re a parent investing for your child, this is essential tax knowledge to avoid surprises at filing time. #KiddieTax #UTMA #TaxFiling #MinorTaxes #FamilyFinance #GreenbushFinancial #InvestmentTaxes 💰 For More Financial Education: Visit my YouTube Channel: Greenbush Financial Group Check out my Website: greenbushfinancial.com ❓ Have Questions About This Video? Contact Michael Ruger with Questions: 518-477-6686 or [email protected] Visit our website: https://www.greenbushfinancial.com/ Subscribe to our channel for more financial planning tips:    / @greenbushfinancialgroup   Leave a comment below! 🔔 Stay Updated If you found this video helpful, please like, comment, and subscribe! Don't forget to hit the bell icon for notifications on new uploads. #michaelruger #greenbushfinancial Frequently Asked Questions (FAQs): What is a UTMA account? A UTMA, or Uniform Transfers to Minors Act account, allows parents or guardians to invest money for a minor child. The account is opened under the child’s Social Security number, with the parent listed as custodian. The custodian controls the account until the child reaches the age of majority, at which point the child assumes full ownership. When does a child gain control of their UTMA account? The age of majority for UTMA accounts varies by state. In most states it is 21, even though the legal age of adulthood may be 18. For example, in New York, the custodian retains control until the child turns 21. How are contributions to a UTMA account treated for tax purposes? Contributions to a UTMA account are considered completed gifts. For 2025, the annual gift tax exclusion is $19,000 per parent ($38,000 per couple). Contributions above this amount require the filing of a gift tax return, though gift tax is rarely due unless lifetime gifting exceeds federal estate tax limits. Does a child with a UTMA account need to file a tax return? If the child is a dependent and has more than $1,350 in unearned income (dividends, interest, or capital gains) in 2025, they must file a tax return. The first $1,350 is covered by the dependent standard deduction. How is investment income in a UTMA account taxed? The first $1,350 of unearned income is tax-free. The next $1,350 is taxed at the child’s tax rate. Unearned income above $2,700 is taxed at the parent’s tax rate under the Kiddie Tax rules. What is the Kiddie Tax? The Kiddie Tax prevents parents in high tax brackets from shifting income to their children’s lower tax bracket. For dependent children under age 18 (or full-time students under age 24), investment income above $2,700 is taxed at the parent’s marginal rate. IRS Form 8615 must be filed with the child’s tax return to calculate this amount. What’s the difference between earned and unearned income for a child? Earned income comes from work (such as a job) and is subject to regular income tax and payroll taxes. Unearned income includes interest, dividends, and capital gains from investments. Earned income may be sheltered by the $15,000 standard deduction in 2025, while unearned income follows the dependent thresholds described above. How can parents minimize taxes in a child’s UTMA account? To limit Kiddie Tax exposure, parents often invest UTMA funds in assets that produce little or no taxable income, such as growth-oriented stocks or tax-efficient mutual funds. They may also try to avoid frequent trading to prevent short-term capital gains, which are taxed at higher rates.