There have been numerous attempts to both document the income-health gradient in children and to understand the nature of the tie. In this paper, we review and summarize existing studies, and then use a unique school-based panel data set from the USA to attempt to further our understanding of the relationship. The long duration (5 observations, 9 years) allows us to add to the understanding of the pattern of the tie, through our ability to test for changes in health status and multiple measures of income, and the school-based nature of the data allow us to add community socioeconomic status to the model. Increasing understanding of the income-health gradient has clear policy implications in terms of effective targeting of interventions to decrease the gradient and hence decrease health disparities among children. Copyright © 2013 John Wiley & Sons, Ltd.