diff --git a/core/dbt/compilation.py b/core/dbt/compilation.py
index 0ffa73df715..0b888ef67fe 100644
--- a/core/dbt/compilation.py
+++ b/core/dbt/compilation.py
@@ -209,10 +209,10 @@ def add_test_edges(self, manifest: Manifest) -> None:
         #
         # Produce the following graph:
         # model1 --> model2 --> model3
-        #   |       /\    |      /\ /\
-        #   |       |    \/      |  |
-        #  \/       |  test2 ----|  |
-        # test1 ----|---------------|
+        #   |       /\    |      /\
+        #   |       |    \/      |
+        #  \/       |  test2 ----|
+        # test1 ----|
 
         for node_id in self.graph:
             # If node is executable (in manifest.nodes) and does _not_
@@ -224,11 +224,17 @@ def add_test_edges(self, manifest: Manifest) -> None:
                 # Get *everything* upstream of the node
                 all_upstream_nodes = nx.traversal.bfs_tree(self.graph, node_id, reverse=True)
                 # Get the set of upstream nodes not including the current node.
-                upstream_nodes = set([n for n in all_upstream_nodes if n != node_id])
+                all_upstream_nodes = set([n for n in all_upstream_nodes if n != node_id])
 
-                # Get all tests that depend on any upstream nodes.
+                # Get 1 depth upsteam of the node
+                direct_upsteam_nodes = nx.traversal.bfs_tree(
+                    self.graph, node_id, reverse=True, depth_limit=1
+                )
+                direct_upsteam_nodes = set([n for n in direct_upsteam_nodes if n != node_id])
+
+                # Get all tests that depend on direct upstream nodes.
                 upstream_tests = []
-                for upstream_node in upstream_nodes:
+                for upstream_node in direct_upsteam_nodes:
                     # This gets tests with unique_ids starting with "test."
                     upstream_tests += _get_tests_for_node(manifest, upstream_node)
 
@@ -244,7 +250,7 @@ def add_test_edges(self, manifest: Manifest) -> None:
                     # If the set of nodes that an upstream test depends on
                     # is a subset of all upstream nodes of the current node,
                     # add an edge from the upstream test to the current node.
-                    if test_depends_on.issubset(upstream_nodes):
+                    if test_depends_on.issubset(all_upstream_nodes):
                         self.graph.add_edge(upstream_test, node_id, edge_type="parent_test")
 
     def get_graph(self, manifest: Manifest) -> Graph: