678 / How is unearned income of certain children treated for federal income tax purposes when such income is derived from property given under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act?
Editor's Note: For tax years beginning after 2017 and before 2026, the personal exemption was suspended. Under the 2017 Tax Act, the unearned income of minors was taxed according to the income tax rates that apply to trusts and estates. The SECURE Act repealed the changes made by the 2017 tax reform legislation with respect to the kiddie tax rules. The repeal of the 2017 kiddie tax changes is effective beginning in 2020. However, taxpayers had the option of electing to have either set of rules apply retroactively, in 2018 and 2019, and to seek a refund if appropriate.1
Taxable income derived from custodial property is, ordinarily, taxed to the minor donee. To the extent that the custodian uses custodial income to discharge the legal obligation of any person to support or maintain the minor, such income is taxable to that person.2 For this purpose, it makes no difference who is the custodian or who is the donor. State laws differ as to what constitutes a parent's obligation to support. A person who may be claimed as a dependent by another may use a standard deduction of $1,350 in 2025-2026, $1,300 in 2024, $1,250 in 2023, $1,150 in 2022, $1,100 in 2019-2021 and $1,050 in 2015-2018) to offset unearned income (or, if higher, the dependent may take a standard deduction in the amount of the sum of $450 in 2023-2026, $400 in 2022-2023, $350 in 2013-2021) and his earned income, as indexed for inflation – see Q 752).3 Prior to 2018, dependents for whom another taxpayer was allowed a personal exemption could not take a personal exemption for themselves (see Q 728). For the treatment of unearned income for children, see Q 679.
1. SECURE Act § 501(c).
2. IRC § 61; Rev. Rul. 56-484, 1956-2 CB 23; Rev. Rul. 59-357, 1959-2 CB 212.
3. Rev. Proc. 2014-61, 2014-47 IRB 860, Rev. Proc. 2015-53, 2015-44 IRB 615, Rev. Proc. 2016-55, Rev. Proc. 2017-58, Rev. Proc. 2018-57, Rev. Proc. 2019-44, Rev. Proc. 2020-45, Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.