How are custodial accounts taxed?
Tax rules for custodial accounts can be complex. Whether there will be taxes owed on a Custodial Account depends on your unique tax situation.
You should consult a tax professional (like an accountant) for answers to specific questions about your specific tax needs.
How Custodial Accounts Are Taxed (according to the IRS)
According to the IRS, there are two primary rules to consider regarding how to report the unearned income of a child.
- If a child’s unearned income such as dividends and interest exceed the amount of $2,100, some of that income could be taxed according to the tax rate of the parent and not that of the child. Instructions for form 8615 contain further details on this matter.
- If dividend and interest income are the child’s only income and this income totals under $10,500, the parent of the child may have the option of including that income on their own tax return rather than filing a separate form for the child. Form 8814 contains further guidance on this issue.
In the event that a parent’s tax rate is higher than that of their child’s, unearned income over $2,100 is subject to the rate of the parent. Unearned income includes dividends, capital gains, royalties, annuity income, fellowship and scholarship grants not reported on Form W-2, income received as the beneficiary of a trust, and other, similar sources of funds.
If a child meets the following conditions, form 8615 must be filed:
- The child has unearned income over $2,100
- The child must file a tax return
- The child either:
- Was under age 18 at the end of the income reporting year
- Was age 18 at the end of the income reporting year and did not have an earned income of over half of the child’s support
- Was a full-time student between ages 19 and 23 at the end of the income reporting year and did not have earned income in excess of half the child’s support
- At least one of the child’s parents was alive at the end of the income reporting year, and
- The child does not file a joint return for the income reporting year.
For a comprehensive list of considerations, definitions, and relevant examples, see IRS publication 929.
*This should not be construed as Tax advice. For additional inquiries, please consult a tax professional.
Related questions View all Taxes
Q. What investing strategy should I use?
At Stash, we promote something we call The Stash Way. These three principles can help get you started and make you a more confident investor over the long-term. Invest regularly You don’t need to have a lot of money to…40
Q. Where are my tax documents?
Stash will email you when your tax forms become available. You can access your documents in the Tax Documents section of your Stash profile. Stash will make your relevant tax documents available online by February 15th. To find them in…14
Q. How do I sell an investment?
You can sell investments in the app or on the web. If you choose to sell, you can either sell part of an investment or sell the entire investment. To sell investments in the app Select the investment you want…156
Didn’t find your question?
Shoot us your question and our Stash experts will get back to you.Submit a question
Intro to Stash: Everything You Need To Know To Start Investing
The Stash Way is a few simple principles at the core of investing with Stash.
Fiduciary 101: Why it’s Our Job to be Your Advocate
It’s a big word that means a lot when it comes to handling your money. It defines a relationship built on trust and duty.
Debt and Equity: What Every Smart Investor Needs to Know
You can invest in debt & in equity, but do you really know what that means? We break down the jargon.