Kiddie tax 2026: when a child's investment income is taxed at the parent's rate

What is the kiddie tax?

The kiddie tax is a rule that taxes part of a child's unearned income, such as interest, dividends and capital gains, at the parent's tax rate when that rate is higher. It exists to stop families from moving investments into a child's name so the income is taxed in the 10% bracket. For 2026 it reaches unearned income above $2,700, the same threshold as 2025 (Rev. Proc. 2025-32).

Unearned income here means all taxable income other than pay for work: interest, dividends, capital gains, rents, royalties, the taxable part of Social Security and pensions, unemployment compensation, taxable scholarships not reported on a W-2 and trust income (Instructions for Form 8615). A child's wages from a job are earned income and are always taxed at the child's own rates.

Who does the kiddie tax apply to?

The kiddie tax applies to a child who has more than $2,700 of unearned income, must file a return, does not file jointly, has at least one living parent at year end, and meets one of three age tests (IRS Topic 553).

• Under age 18 at the end of the year.
• Age 18 at the end of the year, with earned income not more than half of the child's own support.
• A full-time student at least 19 and under 24 at the end of the year, with earned income not more than half of the child's support.

A 20-year-old college student living on a trust fund is covered; a 20-year-old who is not a student is not, and neither is an 18-year-old whose wages pay for more than half of their own support. The child does not have to be claimed as a dependent for the rule to apply.

What is the kiddie tax threshold for 2026?

The 2026 kiddie tax threshold is $2,700 of unearned income, built from a $1,350 reference amount in Revenue Procedure 2025-32. The first $1,350 is generally covered by the child's standard deduction, the next $1,350 is taxed at the child's rates, and anything above $2,700 is taxed at the parent's rate.

For 2027 the reference amount and threshold are not yet announced; the IRS normally publishes them in its annual inflation adjustment revenue procedure in October or November. A dependent child's own standard deduction for 2026 is the greater of $1,350 or earned income plus $450, as explained on our 2026 standard deduction page.

How the kiddie tax is calculated on Form 8615

Form 8615, Tax for Certain Children Who Have Unearned Income, splits the child's taxable income into two parts. Net unearned income, which is unearned income minus $2,700, is taxed as if it were added on top of the parent's taxable income. The rest of the child's taxable income is taxed at the child's own rates.

Worked example: $6,000 of interest in 2026

The kiddie tax added $462 in this example. If the income were qualified dividends or long-term gains instead of interest, the net unearned income would be taxed at the parent's capital gains rate, which may be 0% or 15%; see qualified dividends tax rate.

Which parent's rate is used?

For married parents filing jointly, use their joint return. If they file separately, use the parent with the greater taxable income. For divorced or separated parents, use the custodial parent, the one the child lived with for most of the year, with special rules if that parent remarried. If the parent's figures are not available by the due date, the child can file Form 4868 for an extension or request the information from the IRS in writing.

Can parents report a child's income on their own return (Form 8814)?

Yes, if conditions are met: parents can elect to report a child's interest and dividends on their own return using Form 8814, Parents' Election To Report Child's Interest and Dividends. The child then does not file. The election is available only when all of the following are true (IRS Topic 553).

• The child was under 19, or under 24 if a full-time student, at year end.
• The child's only income was interest and dividends, including capital gain distributions and Alaska Permanent Fund dividends.
• The child's gross income was less than $13,500.
• No estimated tax payments were made in the child's name and no federal tax was withheld, including backup withholding.

Under the election, the child's income between $1,350 and $2,700 is taxed at 10%, a maximum of $135, and income above $2,700 is added to the parent's income. In the example above the total tax is the same $927, but the parent's AGI rises by $3,300.

Common situations and what to do

• Custodial brokerage accounts (UTMA/UGMA): income belongs to the child, so it counts toward the $2,700. Holding growth investments and timing sales can keep realized income lower.
• Survivor Social Security benefits: the taxable part is unearned income; our Social Security tax guide explains how the taxable share is found.
• A lottery or contest prize won by a child: it is unearned income and can trigger the kiddie tax; see gambling winnings tax.
• Teen with a summer job and investments: wages stay at the child's rates; only the unearned part above $2,700 moves to the parent's rate.

For the order in which a child's income, deductions and rates are applied, the same framework as an adult return applies; see how taxable income is calculated.