Kiddie Tax Explained: Rules, Calculation, and Form 8615

The kiddie tax is a federal rule that taxes a child’s investment income above a set threshold at the parent’s marginal tax rate instead of the child’s own, lower rate. Congress enacted it under Internal Revenue Code Section 1(g) to keep high-income families from shifting investment assets into a child’s name to capture a lower bracket.¹ For the 2026 tax year, 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.²

Which Children Are Subject to the Kiddie Tax

Three groups fall under the rule:

Children under 18 at the end of the tax year.
18-year-olds whose earned income doesn’t cover more than half of their own support.
Full-time students ages 19 through 23 whose earned income doesn’t cover more than half of their own support.

In every case, the child must have at least one living parent and cannot file a joint return.³

The support test trips up families more than the age test. Support isn’t just cash the child spends. It includes the fair rental value of the home where the child lives, food, clothing, education costs, medical and dental care, recreation, transportation, and capital items like a car or computer bought for the child. Medical insurance premiums paid on the child’s behalf count too, though Medicare benefits and scholarships do not.⁴ A summer job paying $5,000 won’t clear the bar if total support runs $30,000 or more, so that student stays subject to the kiddie tax.

What Counts as Unearned Income

Only unearned income triggers the kiddie tax. That category covers interest, dividends, capital gains (including capital gain distributions from mutual funds), rents, royalties, pension and annuity payments, taxable scholarship income not reported on a W-2, the taxable portion of Social Security benefits, and trust distributions that aren’t earned income.⁵

Wages, salaries, tips, and other pay for work the child actually performs are earned income and stay at the child’s own rate. If a teenager earns $8,000 from a summer job and $3,500 in dividends, only the dividends run through the kiddie tax calculation.

How the Tax Is Calculated

The amount that actually gets taxed at the parent’s rate is called net unearned income. For 2026, two amounts of $1,350 each are subtracted from the child’s total unearned income before the parent’s rate applies:²

The first $1,350 is sheltered by the dependent’s standard deduction.
The next $1,350 is taxed at the child’s own rate.
Everything above $2,700 is taxed at the parent’s marginal rate.

A concrete example. A 14-year-old with no earned income receives $5,000 in dividends during 2026. The first $1,350 owes nothing. The next $1,350 is taxed at the child’s rate, likely 10%. The remaining $1,700 is net unearned income, taxed at the parent’s marginal rate. If the parent sits in the 32% bracket, that $1,700 generates $544 in tax rather than the $170 it would have cost at the child’s 10% rate.

The child’s tax is set as the greater of the tax computed with the kiddie tax or the tax computed without it, so the rule never reduces what the child would otherwise owe.¹

When the Child Also Earns Wages

A child with both earned and unearned income gets a slightly larger standard deduction: the greater of $1,350 or $450 plus the child’s earned income, capped at the regular single-filer standard deduction of $16,100 for 2026.²⁶ The larger deduction offsets the wages, but the kiddie tax thresholds on the unearned side stay at $1,350 and $2,700. Earned income is taxed separately at the child’s own rate.

Whose Rate Counts as the Parent’s Rate

The IRS defines which parent supplies the rate based on marital and living arrangements:⁵

Married filing jointly: use the joint return.
Married filing separately: use the return of whichever parent has the higher taxable income.
Divorced with the custodial parent not remarried: use the custodial parent’s return.
Divorced with the custodial parent remarried: the stepparent replaces the noncustodial parent. If the custodial parent and stepparent file jointly, use that return; if they file separately, use whichever has the higher taxable income.

When a parent has more than one child subject to the rule, the calculation isn’t done separately for each child. All the children’s net unearned income is pooled and added to the parent’s taxable income to produce a total additional tax, which is then split among the children in proportion to each child’s share of the combined net unearned income.¹ Pooling can push the first child’s income into a higher bracket when a sibling also has investment income.

How to Report It: Form 8615 or Form 8814

Two paths exist. The child files their own return with Form 8615, or the parent absorbs the child’s income using Form 8814. Which one applies depends on the type and amount of the child’s income.

Form 8615

When a child’s unearned income exceeds $2,700, Form 8615 attaches to the child’s own Form 1040. The child needs the parent’s name, Social Security number, and taxable income to complete it. The form walks through the net unearned income calculation and applies the parent’s marginal rate.⁵ This path is required whenever the child has earned income or has unearned income beyond interest and dividends, such as rental income or partnership distributions.

Form 8814

If the child’s only income is from interest, dividends, and capital gain distributions, and the total is less than $13,500, the parent can elect to include the child’s income on the parent’s return using Form 8814. The child skips filing.³

That convenience has a cost. Folding the child’s income into the parent’s return raises the parent’s adjusted gross income, which can shrink or eliminate AGI-sensitive tax benefits including the student loan interest deduction, the child tax credit, education credits, and the earned income credit.⁷ For families near phaseout thresholds, the extra AGI can cost more than the paperwork of a separate child return.

Ways to Reduce the Kiddie Tax

The rule is hard to sidestep once a child owns income-producing assets, but several approaches can shrink the bill.

Favor growth over income. Investments that appreciate without paying annual dividends or interest don’t trigger the tax until they’re sold. Holding growth stocks or accumulating index funds can defer the issue until the child ages out of the rule entirely.

Use tax-advantaged accounts. A 529 education savings plan grows tax-free, and qualified education distributions owe nothing. If the child has earned income, a Roth IRA grows tax-free too. Neither account produces the kind of annual unearned income the kiddie tax reaches.

Consider tax-exempt bonds. Municipal bond interest is generally exempt from federal income tax. Since the rule only applies to taxable unearned income, shifting part of a child’s portfolio into munis removes that income from the calculation.

Employ the child in a family business. Wages paid to a child for real work at a reasonable rate are earned income, taxed at the child’s own rate, and they also increase the child’s standard deduction. The business gets a deduction for the wages. The work has to be legitimate and the pay reasonable for the services performed.

Time asset sales past the age cutoff. Selling appreciated stock after the child turns 24 (or 19 for non-students) means the gain is taxed entirely at the child’s rate. For a child with little other income, the long-term capital gains rate can be 0%. Planning around the age cutoffs is one of the simplest ways to keep a large gain off the parent’s rate.

1
Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
2
Internal Revenue Service. Rev. Proc. 2025-32
3
Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
4
Internal Revenue Service. Publication 501 (2025), Dependents, Standard Deduction, and Filing Information
5
Internal Revenue Service. 2025 Instructions for Form 8615 – Tax for Certain Children Who Have Unearned Income
6
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
7
Internal Revenue Service. Instructions for Form 8814 (2024)