661 / Who is taxed on the income from property that is transferred to a minor under a uniform “Gifts to Minors” act?
As a general rule, the income is taxable to the minor. However, in the case of unearned income (such as trust income) of most children under age nineteen (age 24, if the child is a full-time student), different rules may apply.
Prior to 2018 and after 2019, the unearned income taxable to the child generally is taxed at the parents’ marginal rate when it exceeds $2,700 (in 2025, $2,600 in 2024, $2,500 in 2023, $2,300 in 2022 and $2,200 in 2015 to 2021, as adjusted for inflation).1
Planning Point: Taxpayers had the option of applying a different set of rules in 2018 and 2019 under the 2017 tax reform legislation. If the election was made, earned income of minors would be taxed according to the individual income tax rates prescribed for single filers,2 and unearned income of minors would be taxed according to the applicable tax bracket that would apply if the income was that of a trust or estate (for both income that is subject to ordinary income tax rates and in determining the capital gains rate that will apply if long-term capital gains treatment is appropriate).3
To the extent that income from the transferred property is used for the minor’s support, it may be taxed to the person who is legally obligated to support the minor.4 State laws differ as to a parent’s obligation to support. The income will be taxable to the parent only to the extent that it is actually used to discharge or satisfy the parent’s obligation under state law.5
The 2017 Tax Act aimed to simplify the treatment of unearned income of minors by applying the tax rates that apply to trusts and estates to this income. The SECURE Act6 repealed this rule for tax years beginning in 2020 and thereafter. For 2018 and 2019, taxpayers had the option of electing which set of rules to apply, and may apply for refunds if appropriate for these tax years.
1. Rev. Proc. 2021-45, Rev. Proc. 2022-38, Rev. Proc. 2023-34, Rev. Proc. 2024-40.