Standard Deduction for Dependents and the Kiddie Tax: Rules and Filing

For 2026, the standard deduction for dependents and the kiddie tax work as a pair: a dependent’s standard deduction is the greater of $1,350 or the dependent’s earned income plus $450, capped at the $16,100 single-filer amount, and any unearned income a qualifying child has above $2,700 is taxed at the parent’s marginal rate rather than the child’s.¹² Together, the two rules limit how much investment income a family can shift into a child’s name to reach lower brackets.

Figuring a Dependent’s Standard Deduction

Someone who can be claimed as a dependent doesn’t get the full standard deduction an independent filer receives. The deduction is the larger of $1,350 or the dependent’s earned income plus $450, and it can never exceed $16,100 for 2026.¹

Earned income here means wages, salaries, tips, professional fees, and similar pay for work actually performed. Taxable scholarship or fellowship amounts included in gross income also count.³ Interest, dividends, and other unearned income do not enter the formula at all.

Three examples show the range:

A child whose only income is $3,000 in dividends gets the $1,350 floor. The remaining $1,650 is taxable.
A teenager who earns $4,000 from a summer job gets a $4,450 deduction ($4,000 + $450), because that exceeds the floor.
A dependent college student earning $18,000 from a part-time job is capped at $16,100, not $18,450.

A dependent who works gets a deduction tied to actual wages. A dependent whose income comes entirely from investments is stuck at $1,350. That is the design: passive investment income gets less shelter than earnings from a job.

The Three Tiers of Unearned Income

Under federal law, a qualifying child’s unearned income falls into three tiers.⁴ For 2026:

The first $1,350 is effectively tax-free, offset by the minimum standard deduction.
The next $1,350 is taxed at the child’s own rate, typically 10% if the child has little other income.
Everything above $2,700 is taxed at the parent’s marginal rate, which can reach 37%.¹

The $2,700 line is the point where the kiddie tax kicks in.² These thresholds adjust annually for inflation, so check the current-year figures when preparing a return.

What Counts as Unearned Income

The kiddie tax targets income the child didn’t work for. Common sources include:

Interest from savings accounts, CDs, and bonds.
Dividends from stocks and mutual funds.
Capital gains from selling investments or other property.
Trust distributions where the child is a beneficiary.
Scholarship or fellowship funds spent on room and board rather than tuition, required fees, or course materials.⁵

Custodial accounts under UGMA or UTMA laws are a frequent source. Assets in these accounts legally belong to the child, so any interest, dividends, or capital gains they produce count toward the $2,700 threshold. A custodial account holding $20,000 or more in equities can easily cross that line in a year with sizable mutual fund distributions.

Which Children the Kiddie Tax Reaches

The kiddie tax applies only to a child who meets one of these age-and-support tests at year-end:²

Under age 18.
Age 18, and earned income did not cover more than half of the child’s own support.
Age 19 through 23 as a full-time student, and earned income did not cover more than half of the child’s own support.

The support test catches people off guard. An 18-year-old who works enough to cover more than half their own living expenses is exempt, even while still claimed as a dependent. An 18-year-old living off a trust and working part-time is not. The same logic runs through age 23 for full-time students.

Two more conditions apply: at least one parent must be alive at year-end, and the child cannot file a joint return.⁴

How the Tax Is Computed

When a child’s unearned income exceeds $2,700, Form 8615 figures the tax.² The mechanics stack the child’s net unearned income on top of the parent’s taxable income to find the applicable marginal rate. The child’s tax is the greater of the tax computed normally on the child’s income, or the tax on the child’s earned income at normal rates plus the child’s share of what the statute calls the allocable parental tax.⁴

Put simply: the first $1,350 is wiped out by the standard deduction, the next $1,350 stays at the child’s rate, and everything above $2,700 gets layered onto the parent’s return. For a parent in the 24% bracket with $8,000 of the child’s net unearned income added on top, that excess is taxed at 24% or higher. The top rate reaches 37% on taxable income above $640,600 in 2026.¹

Which Parent’s Rate Applies

For married parents filing jointly, the joint return sets the rate. When parents file separately, the return of the parent with the higher taxable income controls. For divorced or legally separated parents, the custodial parent’s return applies. If the custodial parent has remarried, the stepparent’s income is included through the joint return with the custodial parent, not through the noncustodial biological parent’s return.⁶

Parents who never married and lived together all year use the return of the parent with the greater taxable income. If they didn’t live together all year, the divorced-parent rules apply.⁶

Multiple Children in the Same Family

When more than one child in the same household triggers the kiddie tax, all of their net unearned income is combined and stacked onto the parent’s return to compute a single extra tax. Each child’s share is proportional to their portion of the combined unearned income.⁴ The second child’s income doesn’t start fresh at the bottom of the parent’s bracket; it sits on top of the first child’s, which can push both into a higher rate.

Reporting the Child’s Income on the Parent’s Return

Parents can elect to report the child’s income on their own return using Form 8814 instead of filing a separate return for the child. The election requires all of the following: the child’s income consists entirely of interest, dividends, and capital gain distributions; the child’s gross income falls below the IRS’s annual limit (roughly $13,500 in recent years); and the child meets the age requirements.⁷

The upside is that the child files nothing. The downside is that the child’s income raises the parent’s adjusted gross income, which can trigger phase-outs on credits and deductions the parent would otherwise claim. Families sitting near income-based phase-outs for education credits or the child tax credit can lose more than they save. Run the numbers both ways before choosing.

The Net Investment Income Tax

A dependent with significant unearned income may also owe the 3.8% Net Investment Income Tax on top of the kiddie tax. This surtax applies when modified adjusted gross income exceeds $200,000 for a single filer.⁸ The IRS notes that a child filing Form 8615 may also need to file Form 8960.² Most children never reach $200,000, but a beneficiary of a large trust or an income-producing inheritance can. The threshold is not indexed for inflation, so it captures more filers over time.

When a Dependent Must File

A dependent must file a federal return for 2026 if any of these apply:⁹

Unearned income exceeds $1,350.
Earned income exceeds $16,100.
Gross income exceeds the larger of $1,350 or earned income (up to $15,650) plus $450.

When the kiddie tax applies, Form 8615 must be attached to the child’s Form 1040 even if the calculation produces no additional tax.⁶ Returns are due April 15, or the next business day when that date falls on a weekend or holiday.¹⁰

Self-employment creates a separate trigger. A dependent with net self-employment earnings of $400 or more must file and pay self-employment tax regardless of any other threshold.¹¹ That rule applies at any age.¹² A 14-year-old who nets $500 mowing lawns as an independent contractor owes the tax on those earnings, with Schedule SE attached to Form 1040.

Penalties for Filing Late

A dependent who owes tax and files late faces a failure-to-file penalty of 5% of the unpaid tax for each month or partial month the return is overdue, capped at 25%.¹³ A separate failure-to-pay penalty of 0.5% per month accrues on any unpaid balance, also capping at 25%.¹⁴ When both apply in the same month, the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined charge is 5% per month, not 5.5%. Interest also accrues on the unpaid balance from the original due date. Filing on time and paying whatever is available by April 15 keeps these costs down even when the full balance isn’t ready.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
3
Internal Revenue Service. Earned Income
4
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
5
Internal Revenue Service. Tax Topic 421 – Scholarship and Fellowship Grants
6
Internal Revenue Service. Instructions for Form 8615 – Tax for Certain Children Who Have Unearned Income
7
Internal Revenue Service. Instructions for Form 8814 – Parents’ Election To Report Child’s Interest and Dividends
8
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
9
Internal Revenue Service. Publication 501, Dependents, Standard Deduction, and Filing Information
10
Internal Revenue Service. When to File
11
Internal Revenue Service. Self-Employment Tax (Social Security and Medicare Taxes)
12
Internal Revenue Service. Instructions for Schedule SE (Form 1040)
13
Internal Revenue Service. Failure to File Penalty
14
Internal Revenue Service. Failure to Pay Penalty