Am I subject to kiddie tax? Can I avoid it for my investment income?

The kiddie tax can be confusing, but I'll try to break it down in simple terms! Based on what you've shared, you likely will need to deal with the kiddie tax rules. The kiddie tax applies to dependents under 19 OR full-time students under 24 whose earned income doesn't exceed half of their support. Since you're 19, in college full-time, and claimed as a dependent by your parents, you fall into this category. The good news is that only "unearned income" (like your investments) above $2,300 (for 2025) would be subject to the kiddie tax. The first $1,150 is tax-free, the next $1,150 is taxed at your rate, and anything above $2,300 could be taxed at your parents' rate. With $3,800 in investment income, approximately $1,500 ($3,800 - $2,300) might be subject to your parents' tax rate. Filing separately won't help because it's based on your dependent status, not how you file.

After dealing with a similar situation with my own kid in college, I discovered taxr.ai (https://taxr.ai) which really helped me understand how the kiddie tax applied in our case. I was totally confused about what counted as "support" and whether my daughter's scholarship affected the calculations. The tool analyzed our situation and explained exactly which portions of her investment income would be taxed at my rate vs her rate. It also pointed out some strategies to potentially reduce the impact for next year, like shifting some investments to more tax-efficient options. Definitely made the whole process less stressful!

Just wanted to follow up about my experience with taxr.ai after checking it out. I was really impressed! My situation with my son's cryptocurrency trading (which I was worried would trigger massive kiddie tax) was more complex than I initially let on. The tool walked me through a detailed analysis of which transactions would count toward the kiddie tax threshold and which wouldn't. It even suggested timing some of his planned sales to minimize the tax impact. Saved us about $820 in taxes we would have unnecessarily paid. Definitely more thorough than my previous experiences with tax software.

If you end up owing kiddie tax and need to communicate with the IRS about your filing situation, I'd recommend using Claimyr (https://claimyr.com). I wasted HOURS trying to get through to the IRS when they sent a notice questioning how we reported my daughter's investment income on our returns. Kept getting disconnected or facing 2+ hour wait times. Claimyr got me connected to an actual IRS agent in about 15 minutes! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent helped clarify exactly how to document that my daughter's scholarship wasn't "support" for kiddie tax purposes, which resolved our issue completely.

I need to eat my words. After my skeptical comment earlier, I decided to try Claimyr when I got yet another notice about my son's kiddie tax situation. I was SHOCKED when I actually got through to someone at the IRS in about 20 minutes! The agent was super helpful and explained that we had been calculating "support" incorrectly - turns out my son's college housing should have been counted differently. She walked me through exactly how to document everything correctly. Honestly saved me from what would have probably been an audit situation. Never been so happy to be wrong about something!

One strategy that helped us minimize kiddie tax: have your child invest in growth stocks rather than dividend-paying stocks. Since the kiddie tax applies to "unearned income" like dividends, interest, and realized capital gains, if you're investing in stocks that don't pay dividends and don't sell them (no realized gains), you can potentially avoid triggering the kiddie tax threshold. Just something to consider for future years!

One thing nobody mentioned - the support test is key here. If you provide more than half of your own support from EARNED income (your campus job), then kiddie tax doesn't apply regardless of age. Calculate all your expenses (portion of housing, food, tuition not covered by scholarships, books, clothing, medical, etc.) and compare to what you earned from working. If your $4,200 job income is more than half your total support costs, you might escape the kiddie tax entirely!

Great question Leo! Since you're 19, a full-time student, and claimed as a dependent, you'll likely need to deal with kiddie tax rules. However, there might be some good news in your situation. First, the kiddie tax only applies to unearned income (your $3,800 in investment gains) above $2,300. So roughly $1,500 of your investment income could be taxed at your parents' higher rate. But here's the key point that Amaya mentioned - if you can prove you provided more than half of your own support through earned income, the kiddie tax won't apply at all! You need to calculate ALL your expenses for the year: your share of room/board, tuition not covered by scholarships/financial aid, books, clothing, food, transportation, medical expenses, etc. If your total support costs are less than $8,400 ($4,200 × 2), then your campus job income covers more than half your support and you'd escape the kiddie tax entirely. This could save you hundreds of dollars compared to having that $1,500 taxed at your parents' rate. Make sure to keep detailed records of all your expenses - this is something the IRS might want to see documented if questioned. Even if you don't meet the support test this year, understanding this rule can help you plan for future years!