What Is the Kiddie Tax? Rules, Forms, and Who Qualifies

The kiddie tax is a federal rule that taxes a child’s unearned income above $2,700 at the parent’s marginal tax rate rather than the child’s own lower rate. It exists to stop families from parking stocks, bonds, and other income-producing assets in a child’s name to capture a cheaper bracket. It applies to most children under 19, and to full-time students under 24, once their investment income clears the annual threshold.¹

Which Children the Rule Covers

Age is the starting point, but not the whole test. Three groups can be caught:

Any child under 18 at year-end.
A child who is exactly 18 at year-end, if their earned income didn’t cover more than half of their own support.
A full-time student aged 19 through 23, again only if earned income didn’t cover more than half of support.²

A few other conditions have to be true as well: at least one parent must be alive at the end of the tax year, the child must be required to file a return, and the child cannot file a joint return.³ Support in this context means housing, food, education, and similar living expenses. A teenager whose summer job pays more than half of those costs is outside the kiddie tax even if a brokerage account is generating dividends on the side.

What Income Triggers It

Only unearned income counts. That means taxable interest, ordinary and qualified dividends, capital gains from selling investments, rents, royalties, and the taxable portion of scholarships not spent on tuition or required fees.³ Income thrown off by UGMA or UTMA custodial accounts is a common trigger, because everything earned inside those accounts belongs to the child.

Wages, self-employment, babysitting money, and other earned income stay taxed at the child’s own rate no matter how large. If the child worked for it, the parent’s rate doesn’t apply.

How the Tax Is Calculated

The kiddie tax has a three-tier structure. For the 2026 tax year:

The first $1,350 is covered by the dependent’s standard deduction and taxed at nothing.
The next $1,350 (from $1,351 to $2,700) is taxed at the child’s own rate, typically 10%.
Everything above $2,700 is taxed at the parent’s marginal rate.³

The amount above $2,700 is what the IRS calls net unearned income. The mechanics are simple in concept: that net unearned income is added to the parent’s taxable income, the additional tax it would produce is calculated, and that extra tax is assigned to the child. The child’s return then shows whichever is higher, the normal calculation or the kiddie tax result.¹

A concrete example. Suppose a child has $8,700 in dividend income and the parent’s marginal rate is 32%. The first $1,350 is tax-free. The next $1,350 is taxed at the child’s 10% rate for $135. The remaining $6,000 is taxed at the parent’s 32% rate for $1,920. The child’s total tax on that investment income comes to $2,055.

Qualified Dividends and Long-Term Gains Keep Their Rates

An important wrinkle catches many families off guard. Qualified dividends and long-term capital gains do not automatically get taxed at the parent’s ordinary income rate. They keep their preferential rates of 0%, 15%, or 20% even when the kiddie tax applies. The calculation adds the child’s net unearned income to the parent’s return and then applies the rate structure the parent would face on that type of income. If the parent’s income plus the child’s net unearned income still falls within the 15% long-term capital gains bracket, that’s what the child pays on those gains.⁴

This matters most for families outside the top bracket. A child with $5,000 in qualified dividends whose parent sits in the 22% ordinary income bracket won’t pay 22% on the excess. The qualified dividend rate based on the parent’s total income applies instead, which could be 15% or even 0%.

How to Report the Income

There are two ways to get kiddie tax income onto a return, and the choice affects the final bill.

Form 8615: The Child Files

The default when unearned income exceeds $2,700 is for the child to file a Form 1040 with Form 8615 attached. Form 8615 requires the parent’s Social Security number and the parent’s taxable income so the IRS can compute the correct rate.⁵ This route generally produces the lower tax when the child has qualified dividends or long-term capital gains, because those income types keep their preferential treatment on the child’s own return.

Form 8814: The Parent Reports It

Parents can instead pull the child’s income onto their own return using Form 8814. The child doesn’t file at all, but strict conditions apply. The child’s only income must be interest and dividends (including capital gain distributions), gross income must be under $13,500, no estimated tax payments can have been made under the child’s name, and no federal income tax can have been withheld from the child’s income. The child must also meet the age requirements and cannot file a joint return.⁴

The convenience carries a cost. Under this election, the child’s income between $1,350 and $2,700 is taxed at a flat 10%. If that income is made up of qualified dividends or long-term capital gains, a separate return for the child could tax the same slice at 0%. The IRS estimates the difference can run up to $135 in extra tax when Form 8814 is used instead of a separate return.⁴ For small amounts, the simplicity may be worth it. For larger amounts with favorable capital gains, filing the child’s own return usually wins.

Divorced, Separated, and Remarried Parents

When parents don’t live together or aren’t married, the kiddie tax calculation uses the return of the custodial parent, meaning the one who had the child for the greater part of the year. If that parent has remarried, the stepparent is treated as the child’s other parent for kiddie tax purposes, not the noncustodial biological parent.⁵

How the custodial parent and stepparent file determines which numbers go on Form 8615. If they file jointly, use the joint return. If they file separately, use whichever return shows the higher taxable income. A custodial parent who remarries someone in a high tax bracket may see the child’s kiddie tax bill rise sharply, even though the stepparent had nothing to do with the investments.

When Multiple Children Are Affected

If a parent has more than one child triggering the kiddie tax in the same year, the IRS doesn’t run each calculation in isolation. It pools the net unearned income of all affected children, adds the total to the parent’s taxable income, computes the combined additional tax, and splits it between the children in proportion to each one’s share of the pooled income.¹

Pooling can push the combined income into a higher bracket than any single child would hit alone. Two children each with $10,000 in net unearned income are taxed as though the parent earned an extra $20,000, not $10,000 twice. Families running multiple custodial accounts should model the combined effect rather than looking at each account by itself.

Ways to Reduce Exposure

The kiddie tax only touches unearned income that is actually realized and taxable in a given year. That leaves several openings:

Growth-oriented stocks that appreciate but pay little or no dividends don’t generate taxable income until sold. Holding them in a child’s account and delaying the sale until after the kiddie tax ages out sidesteps the parent’s rate entirely.
Interest from municipal bonds is generally exempt from federal income tax, so it doesn’t count toward the child’s unearned income.
Growth inside a 529 education savings plan isn’t taxed as the child’s unearned income, and qualified withdrawals are tax-free.
A child with earned income can contribute to a Roth IRA, where gains grow tax-free and never trigger the kiddie tax.

Families that have already funded custodial accounts can still reposition the investments inside them toward growth stocks or tax-exempt instruments. The assets already belong to the child, so there’s no fresh gift-tax issue in shifting the mix.

What Happens If You Don’t File

The kiddie tax has no separate penalty regime; it runs through the child’s Form 1040. If a child is required to file because unearned income exceeds the filing threshold and doesn’t, the standard failure-to-file penalty applies: 5% of the unpaid tax for each month the return is late, up to 25%. Returns more than 60 days late face a minimum penalty of $525 or 100% of the unpaid tax, whichever is less.⁶

Interest accrues on top of the penalty from the original due date. Electing Form 8814 puts the income on the parent’s return and removes the child’s filing obligation. If neither the child nor the parent reports the income, penalties fall on whichever return should have carried it.

1
Office of the Law Revision Counsel. 26 U.S. Code 1 – Tax Imposed
2
Internal Revenue Service. Full-Time Student
3
Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
4
Internal Revenue Service. 2025 Instructions for Form 8814
5
Internal Revenue Service. Instructions for Form 8615
6
Internal Revenue Service. Failure to File Penalty