Guides
The Kiddie Tax: How a Child’s Investment Income Is Taxed
The kiddie tax is a set of IRS rules that taxes a dependent child’s unearned income (interest, dividends, capital gains, and similar investment income) at the parent’s marginal rate once it crosses an annual threshold. For 2026, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s own rate, and anything above $2,700 is taxed at the parent’s rate. The rules exist to stop families from shifting income-producing assets to a child to capture lower brackets.
Congress created the kiddie tax in the Tax Reform Act of 1986. It applies to most children under 18, plus certain students under 24, and is reported on Form 8615 (filed with the child’s return) or, in limited cases, on the parent’s return via Form 8814.
How the kiddie tax works in 2026
In 2026, a child’s unearned income is split into three tiers: the first $1,350 is offset by the child’s standard deduction and is tax-free, the next $1,350 is taxed at the child’s own (usually 10%) rate, and unearned income above $2,700 is taxed at the parent’s marginal rate. Only unearned income is affected. Wages and other earned income are always taxed at the child’s own rate.
The $2,700 figure is the sum of two $1,350 layers, both indexed for inflation. For 2025 and 2026 the numbers are the same: $1,350 and $2,700. When a child’s investment income clears $2,700, the excess is stacked on top of the parent’s taxable income and taxed as if the parent had earned it, which can reach up to the 37% top bracket plus, in some cases, the 3.8% Net Investment Income Tax.
The three-tier calculation
The tiering means the marginal cost climbs as the account grows. A child with exactly $2,700 of unearned income pays only the child’s-rate tax on the middle tier. A child with $10,000 pays the parent’s rate on $7,300 of it.
| Unearned income tier (2026) | Amount | Taxed at |
|---|---|---|
| First layer (standard deduction) | $0 to $1,350 | 0% (tax-free) |
| Second layer | $1,350 to $2,700 | Child’s rate (typically 10%) |
| Third layer | Above $2,700 | Parent’s marginal rate |
What counts as unearned income
Unearned income is investment-type income the child did not work for: taxable interest, ordinary and qualified dividends, capital gains and capital gain distributions, rents, royalties, taxable Social Security and pension income, and income from a trust. Tax-exempt interest does not count. Earned income (wages, salary, self-employment) is excluded and always taxed at the child’s rate.
This distinction is the core of the rule. A teenager with a summer job and $8,000 in wages owes no kiddie tax on those wages. The same teenager with $8,000 of dividends from a custodial brokerage account can owe kiddie tax on the portion above $2,700. Capital gain distributions from mutual funds and interest reported on a Form 1099-INT or dividends on a Form 1099-DIV are common triggers.
The age tests: who the kiddie tax applies to
The kiddie tax applies to a child who meets one of three age conditions and has more than $2,700 of unearned income, provided at least one parent was alive at year end, the child is required to file, and the child does not file a joint return. Age alone can pull an adult student into the rules if a support test is failed.
The three age brackets each carry their own condition. For 18-year-olds and students aged 19 to 23, an earned-income support test can switch the rule off.
- Under age 18 at year end. The kiddie tax applies regardless of earned income or support.
- Age 18 at year end. The kiddie tax applies unless the child’s earned income was more than half of their own support for the year.
- Full-time student, age 19 to 23 at year end. The kiddie tax applies unless the child’s earned income was more than half of their own support.
The support test
For the age-18 and student brackets, the escape hatch is support. If the child’s own earned income covered more than half of their support (food, shelter, clothing, medical care, education, and similar costs), the kiddie tax does not apply and the child is taxed entirely at their own rate. Scholarships received by a full-time student are generally excluded from the support calculation.
Form 8615 vs Form 8814: which form to use
There are two ways to report a child’s unearned income. Form 8615 is filed with the child’s own Form 1040 and computes the tax at the parent’s rate. Form 8814 lets the parent instead report the child’s interest and dividends directly on the parent’s return, so the child files nothing. Form 8814 is only available in narrow circumstances and often costs more in total tax.
Form 8615 is the default and applies whenever the child must file and clears the $2,700 threshold. Form 8814 is an elective shortcut with strict limits.
| Feature | Form 8615 | Form 8814 |
|---|---|---|
| Filed with | Child’s Form 1040 | Parent’s Form 1040 |
| Who files a return | Child files | Child files nothing |
| Income types allowed | All unearned income | Interest, dividends, capital gain distributions only |
| Child’s gross income limit | None | Less than $13,500 (2026) |
| No estimated payments or withholding on child | Not required | Required for election |
| Common downside | More paperwork | Can raise parent’s AGI and total tax |
When Form 8814 is allowed, and its cost
The parent may elect Form 8814 only if the child’s gross income is less than $13,500 for 2026, the income is solely interest, dividends, and capital gain distributions, no estimated tax was paid in the child’s name, and the child had no backup withholding. The election can raise the parent’s adjusted gross income, which may shrink deductions and credits (traditional IRA deduction, student loan interest, education credits, the child tax credit, and the earned income credit). The IRS notes the election can cost up to about $135 more when qualified dividends or capital gain distributions are involved, because the child’s own 0% rate on those items is lost. The amount on Form 8814, line 12, also flows into the parent’s modified AGI for the 3.8% NIIT.
Planning around the kiddie tax
The kiddie tax limits, but does not eliminate, the benefit of holding assets in a child’s name. Families often keep custodial-account unearned income near the $2,700 line, favor tax-efficient or growth holdings that defer gains, or use vehicles like 529 plans where earnings grow tax-deferred. Timing capital gains and using the child’s own low bracket up to $2,700 each year are common tactics.
Because gains realized in a custodial account count as the child’s unearned income, tracking cost basis carefully matters: a large realized gain can push a child well past $2,700 in a single year and into the parent’s top bracket.
Frequently asked questions
What is the kiddie tax threshold for 2026?
For 2026, the kiddie tax kicks in on unearned income above $2,700. The first $1,350 is tax-free (covered by the child’s standard deduction), the next $1,350 is taxed at the child’s own rate, and any unearned income above $2,700 is taxed at the parent’s marginal rate. The $2,700 figure is unchanged from 2025 and is indexed for inflation.
Does the kiddie tax apply to earned income like wages?
No. The kiddie tax applies only to unearned income such as interest, dividends, and capital gains. Wages, salary, and self-employment income are earned income and are always taxed at the child’s own rate, no matter how high. A child with a job pays regular tax on those wages, and the earned income can also affect the support test that determines whether the kiddie tax applies at all.
Up to what age does the kiddie tax apply?
It applies to children under 18 in all cases, to 18-year-olds whose earned income did not exceed half their support, and to full-time students aged 19 to 23 whose earned income did not exceed half their support. Once a person turns 24 by year end, or a non-student turns 19, the kiddie tax generally no longer applies and all income is taxed at their own rate.
What is the difference between Form 8615 and Form 8814?
Form 8615 is filed with the child’s own tax return and figures the kiddie tax at the parent’s rate. Form 8814 lets the parent report the child’s interest and dividends on the parent’s return so the child files nothing. Form 8814 is only allowed when the child’s gross income is under $13,500 (2026) and consists solely of interest, dividends, and capital gain distributions.
Can reporting my child’s income on my return cost more tax?
Yes. Electing Form 8814 can raise your adjusted gross income, which may reduce deductions and credits and can add the child’s income to your base for the 3.8% Net Investment Income Tax. The IRS says the election can cost up to roughly $135 more when qualified dividends or capital gain distributions are involved, because the child loses the 0% rate available on their own return.
Is the kiddie tax based on the parent’s tax rate?
In part. Only the child’s unearned income above $2,700 is taxed at the parent’s marginal rate for 2026. The layers below that ($1,350 tax-free and $1,350 at the child’s rate) are taxed using the child’s own situation. So the parent’s rate applies to the top slice, not the whole account.
Reviewed by The Ledgerism Editorial Team. Last reviewed: July 2026.