The kiddie tax exists for one specific reason: to stop parents from shifting income-producing investments into a child's name purely to have that income taxed at the child's much lower rate. If your child has investment income above a fairly modest threshold, some of it gets taxed at your rate instead of theirs — regardless of whose name is on the account.
Who It Applies To
The kiddie tax applies to a child who meets both an age test and a support test:
- Under age 18 at the end of the tax year, or
- Age 18, if the child's own earned income didn't cover more than half of their support for the year, or
- A full-time student age 19 through 23, again only if their earned income didn't cover more than half of their own support
It only applies to unearned income — interest, dividends, capital gains, and similar investment-type income. A teenager's wages from an actual job are earned income and are never subject to the kiddie tax, regardless of the amount.
The 2026 Thresholds: A Two-Tier Structure
For 2026 (unchanged from 2025), a child's unearned income is taxed in three tiers:
| Unearned Income Range | How It's Taxed |
|---|---|
| First $1,350 | Tax-free (offset by the dependent standard deduction) |
| Next $1,350 (up to $2,700 total) | Taxed at the child's own rate |
| Above $2,700 | Taxed at the parent's marginal tax rate |
The amount taxed at the parent's rate — everything above $2,700 — is called "net unearned income" in the statute. Both threshold amounts come from Rev. Proc. 2025-32 and are built from the $1,350 dependent standard-deduction floor (the $2,700 threshold is simply twice that floor).
A Worked Example
A 14-year-old with no earned income receives $5,000 in dividends during 2026. The first $1,350 is entirely tax-free. The next $1,350 is taxed at the child's own rate — likely 10%, producing $135 in tax. The remaining $2,300 ($5,000 minus the $2,700 combined floor) is net unearned income, taxed at the parent's marginal rate. If the parents are in the 32% bracket, that portion generates $736 in additional tax. Total tax on the $5,000: $871 — noticeably more than the roughly $500 it would have cost entirely at the child's 10% rate, which is exactly the outcome the kiddie tax is designed to produce.
Two Ways to Report It: Form 8615 or Form 8814
There are two mechanisms for actually reporting this on a return, and the choice matters for both simplicity and total tax owed:
- Form 8615 — filed on the child's own tax return. This is required whenever the child has any earned income in addition to unearned income, or when their unearned income is high enough that the parental election (below) isn't available.
- Form 8814 — a parental election to simply include the child's interest and dividend income directly on the parents' return instead of filing a separate return for the child. This is only available if the child's income is exclusively interest, dividends, and capital gain distributions (no other income types), and their gross income is under $13,500 for the year.
⚠️ Electing to include a child's income on the parents' return via Form 8814 can be more convenient, but it can also produce a somewhat higher total tax bill than filing the child's own return with Form 8615, because it raises the parents' AGI directly — which can affect other income-based phase-outs on the parents' return (certain deductions, credits, or the Net Investment Income Tax threshold) in ways that filing separately for the child wouldn't. Compare both approaches before choosing, particularly if the parents' income is already near a phase-out threshold.
How Capital Gains and Qualified Dividends Interact
The kiddie tax doesn't override the preferential rates that apply to long-term capital gains and qualified dividends — those portions of a child's net unearned income are still taxed using the preferential 0/15/20% brackets, just calculated with reference to the parent's taxable income and rate schedule rather than the child's own. This makes the actual computation on Form 8615 more layered than a flat "apply the parent's ordinary rate" calculation, particularly when a child has a mix of ordinary interest and qualified dividends or long-term gains.
Ways Families Commonly Plan Around It
529 college savings plan earnings are specifically excluded from the kiddie tax entirely as long as withdrawals are used for qualified education expenses, making them one of the few ways to grow money in a child's name without triggering this rule. Custodial account income (UTMA/UGMA) does not get this exclusion and remains fully subject to the kiddie tax. Some families also simply keep investment accounts in the parents' names rather than the child's, since the tax outcome for unearned income above the threshold is essentially the same either way — the kiddie tax exists specifically so that shifting the account title doesn't accomplish anything.
Why This Rule Exists
The kiddie tax dates back to the Tax Reform Act of 1986, introduced specifically to close a strategy wealthy parents were using at the time: transferring appreciated stocks, bonds, or other income-producing assets into a child's name so the resulting interest, dividends, or gains would be taxed at the child's much lower rate rather than the parents'. Before this rule existed, a family could shift a meaningful amount of investment income out of the parents' top bracket entirely just by re-titling an account — the kiddie tax closed that gap by taxing the excess at the parent's rate regardless of whose name is on the account.
Common Questions
Does the kiddie tax apply to a child's scholarship income? Taxable scholarship income (the portion used for non-qualified expenses like room and board) is treated as earned income for kiddie-tax purposes in certain circumstances, but the rules here are nuanced — check current IRS guidance or Publication 929 if this applies to your situation.
Does a custodial Roth IRA avoid the kiddie tax? Contributions to a Roth IRA require earned income to begin with, and growth inside the Roth isn't taxed annually at all (kiddie tax or otherwise) as long as it stays in the account — but this only works if the child has actual earned income to base contributions on.
Is there a kiddie tax on a child's earned income? No — the kiddie tax only ever applies to unearned income. A child's wages, salary, or self-employment earnings are taxed at the child's own rates regardless of amount.
💡 This calculator is built around individual adult filers and doesn't currently model Form 8615's parent-rate calculation directly — see our Methodology page. Use the calculator to check the parent's own marginal rate, which is the rate that applies to the child's net unearned income above the threshold.