What Is Unearned Income for a Child: Kiddie Tax and Form 8615

Money a child receives from investments rather than from a job is unearned income, and the kiddie tax rules for a child’s unearned income decide how much of it gets taxed and at whose rate. For the 2026 tax year, the first $1,350 is sheltered by the dependent’s standard deduction and 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 marginal rate when that rate is higher than the child’s.¹ The framework exists to keep families from parking investment income in a child’s name to avoid higher brackets.

What Counts as a Child’s Unearned Income

The IRS treats unearned income as anything other than wages, salaries, and other pay for work the child actually performed. The everyday sources are interest from savings or custodial bank accounts, dividends from stocks, capital gains from selling investments, and distributions from trusts. Rents, royalties, and the taxable portion of Social Security or pension payments a child receives also count.²

A few less obvious items land in the same bucket. Taxable scholarships count as unearned income when they cover non-tuition expenses like room and board. Unemployment compensation qualifies if a teenager collected benefits from a prior seasonal job. Money held in a UGMA or UTMA custodial account belongs to the child for tax purposes, so all the interest, dividends, and gains generated inside those accounts are the child’s unearned income and run through these rules.²

Which Children the Kiddie Tax Applies To

The kiddie tax kicks in only when a child meets every one of these conditions: the child had more than $2,700 in unearned income, the child is required to file a return, at least one parent was alive at year-end, and the child does not file a joint return.¹

The child also has to fit one of three age categories:

Under 18 at the end of the tax year.
Age 18 at year-end, but only if the child’s earned income did not cover more than half of their own support.
A full-time student aged 19 through 23, if earned income did not cover more than half of their support.

Once a child turns 18 and earns enough to cover more than half of their own living costs, the kiddie tax no longer reaches them. The same escape exists for full-time students who turn 24 or begin funding most of their own support through work.³

When the Child Has to File a Return

A dependent child must file a federal return if unearned income exceeds $1,350 for 2026. That figure is the standard deduction available to a dependent with no earned income.⁴ Below $1,350 in unearned income, there is generally no federal filing obligation.

A child with both earned and unearned income has to file when total gross income exceeds the greater of $1,350 or the sum of $450 plus earned income (capped at the regular standard deduction). A teenager with $800 in wages and $700 in interest has $1,500 in total income and a filing threshold of $1,250 ($450 plus $800), so a return is required.⁴ The $1,350 amount held steady from 2025 into 2026.

How the Tax Is Calculated

The kiddie tax runs on three tiers that get progressively less friendly as unearned income grows:

First $1,350: sheltered by the dependent’s standard deduction and tax-free.
Next $1,350 (from $1,351 to $2,700): taxed at the child’s own rate, usually the lowest 10% bracket.
Above $2,700: taxed at the parent’s marginal rate, if that rate is higher than the child’s.

The IRS builds the third tier by adding the child’s net unearned income (the amount above $2,700) to the parent’s taxable income, computing the additional tax that results, and assigning that tax back to the child’s return. If more than one child in the family triggers the kiddie tax, the parent’s income is allocated proportionally among them.⁵

One nuance is easy to miss. The IRS compares the tax computed under the kiddie tax method to the tax the child would owe at their own rates, and the child pays the larger of the two. In practice, the parent’s rate almost always wins, but near the $2,700 line the gap can be small.²

Qualified Dividends and Long-Term Capital Gains

Not every dollar of unearned income is taxed at ordinary rates. Qualified dividends and long-term capital gains keep their preferential rates (0%, 15%, or 20% depending on the bracket) even when they run through the kiddie tax calculation. When the portion of unearned income above $2,700 includes qualified dividends or long-term gains, the Form 8615 worksheet applies the parent’s capital gains rate to that piece rather than the parent’s ordinary rate. That often produces a smaller tax bill than parents expect.

Reporting the Income: Form 8814 or Form 8615

Parents have two ways to handle the reporting, and the right choice depends on the type and size of the income.

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

If the income is simple enough, parents can elect to report it on their own return by attaching Form 8814 to their Form 1040, which avoids filing a separate return for the child. The election is available only when all of these are true:¹

The child was under 19, or under 24 if a full-time student, at year-end.
The child’s income was only interest, dividends, and capital gain distributions.
The child’s gross income for 2026 was less than $13,500.
The child made no estimated tax payments and had no prior-year overpayment applied to the current year.

The convenience has a cost. Folding the child’s income into the parent’s return raises the parent’s adjusted gross income, which can shrink eligibility for income-based credits and deductions and push the parent closer to phase-outs on other benefits.⁶

Filing a Separate Return for the Child

When unearned income exceeds $2,700 and doesn’t qualify for the Form 8814 election, or when parents just prefer keeping the returns separate, the child files their own Form 1040 with Form 8615 attached. Form 8615 needs the parent’s Social Security number, taxable income, and filing status so the IRS can apply the correct parental rate to the child’s excess unearned income.²

Before filing either way, gather the child’s Social Security number, all 1099-INT and 1099-DIV forms from financial institutions, and records of any capital gains. If the child files separately, you’ll also need the parent’s taxable income from Form 1040, line 15.

Which Parent’s Rate Applies

For parents filing jointly, the calculation uses the joint taxable income. When parents are divorced, separated, or never married, the statute picks which parent’s income to use:⁷

Unmarried parents: the custodial parent’s taxable income is used.
Married filing separately: the parent with the greater taxable income is used.

The choice matters. If the custodial parent sits in a lower bracket than the noncustodial parent, the child’s tax on unearned income above $2,700 will be lower than under the other parent’s rate. If the custodial parent remarries and files jointly, that new joint income becomes the figure the kiddie tax uses.

What Happens If You File Late or Skip the Return

Small amounts can lull parents into missing a filing obligation, and the IRS does not carve out exceptions for minors. A child’s late return draws the same penalties that hit any individual taxpayer.

The failure-to-file penalty runs 5% of the unpaid tax for each month or partial month the return is late, up to a 25% cap. For returns due after December 31, 2025, the minimum penalty for filing more than 60 days late is $525 or 100% of the unpaid tax, whichever is less.⁸

If the IRS finds a substantial understatement of tax on the child’s return, an additional accuracy-related penalty of 20% of the underpayment can apply.⁹ Interest accrues on both the unpaid tax and the penalties from the original due date until everything is paid. On a small balance the interest is minor; on a return involving a large trust distribution or a sizable stock sale, the numbers add up quickly.

1
Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
2
Internal Revenue Service. 2025 Instructions for Form 8615 – Tax for Certain Children Who Have Unearned Income
3
Internal Revenue Service. Instructions for Form 8615 (2025)
4
Internal Revenue Service. Rev. Proc. 2025-32
5
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
6
Internal Revenue Service. 2025 Instructions for Form 8814
7
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
8
Internal Revenue Service. Failure to File Penalty
9
eCFR. 26 CFR 1.6662-2 – Accuracy-Related Penalty