Many parents are unaware of the so-called kiddie tax, and those who have heard of it often assume it applies only to young children. However, the rules extend much further. In certain situations, the kiddie tax can affect full-time students up to age 23 and even some 18-year-olds who are no longer minors.
When the tax applies, a portion of a child’s unearned income may be taxed at the parent’s higher tax rate rather than the child’s rate. Understanding these rules can help families avoid unexpected tax bills and make more informed investment decisions.
Who Is Subject to the Kiddie Tax?
The kiddie tax generally applies to individuals who meet one of the following conditions at the end of the tax year:
- They are under age 18.
- They are age 18 and do not provide more than half of their own support through earned income.
- They are between ages 19 and 23, are full-time students, and do not provide more than half of their own support through earned income.
As a result, many college students remain subject to the kiddie tax until the year they turn 24. Beginning with that year, the tax no longer applies, even if parents continue to provide financial support.
How the Kiddie Tax Works
The kiddie tax applies only to unearned income. Income earned from employment or self-employment is never subject to these rules.
For 2026, the kiddie tax comes into play when unearned income exceeds $2,700. Unearned income typically includes:
- Interest income
- Dividend income
- Capital gains
- Other investment-related income
This income often comes from custodial accounts, gifted investments or other assets held in a child’s name.
For 2026:
- The first $1,350 of unearned income is generally tax-free.
- The next $1,350 is taxed at the child’s tax rate.
- Any unearned income above $2,700 is generally taxed at the parent’s marginal tax rate.
Depending on the parent’s income level, the tax rate on excess unearned income can be as high as:
- 20% for long-term capital gains and qualified dividends
- 37% for interest income, short-term capital gains and nonqualified dividends
When Form 8615 Is Required
For 2026, Form 8615, Tax for Certain Children Who Have Unearned Income, generally must be filed if all of the following conditions apply:
- Unearned income exceeds $2,700.
- The child is required to file a federal income tax return.
- The child meets the age and support requirements for the kiddie tax.
- At least one parent is living.
- The child is not married filing a joint return.
Families should remember that the income threshold is adjusted periodically for inflation. However, increases typically occur only in increments of at least $100, meaning the threshold may remain unchanged from year to year.
Tax Planning Strategies to Consider
The kiddie tax can increase a family’s overall tax burden when significant investment income is earned in a child’s name. Fortunately, proactive planning may help reduce exposure.
One potential strategy is to emphasize growth-oriented investments that generate limited current income. By minimizing annual taxable income, families may reduce the likelihood of triggering the kiddie tax while the child remains subject to the rules.
Once the child reaches an age where the kiddie tax no longer applies, appreciated investments may be sold and taxed at the child’s own rate, which could be significantly lower than the parents’ rate.
Review Your Family’s Situation
Because the kiddie tax rules can be complex, reviewing custodial accounts, investment holdings and support arrangements is often worthwhile. Careful planning can help families manage taxes more effectively and avoid costly surprises.
A tax professional can evaluate your circumstances, identify potential exposure to the kiddie tax and recommend strategies designed to improve tax efficiency.