The “kiddie tax” is a set of rules designed to prevent families from shifting investment income to children simply to use a lower tax bracket. It does not apply to wages a child earns from work. It generally focuses on unearned income such as taxable interest, dividends, capital gains, rents, royalties, and certain trust distributions.

Who can be subject to it?

The rule can apply to a child under age 18. It can also reach an 18-year-old, or a full-time student under age 24, when the child’s earned income does not exceed half of their support and the other requirements are met. The child does not have to be claimed as a dependent for the rule to apply.

For 2026, the inflation-adjusted amount used in the calculation is $1,350. In general, the first $1,350 of unearned income is covered by the dependent standard deduction, the next $1,350 is taxed at the child’s rate, and net unearned income above $2,700 may be taxed at the parent’s rate if that rate is higher. The calculation is generally made on Form 8615.

Putting an investment in a child’s name does not necessarily move all of its taxable income into the child’s lower bracket.

What records matter?

  • Forms 1099 showing interest, dividends, and sales
  • Cost-basis records for investments sold during the year
  • Trust or estate Schedules K-1
  • The child’s wages and information about the child’s support
  • The parent’s filing status and taxable income

Can the parent report the income instead?

In some cases, a parent may elect to include a child’s interest, ordinary dividends, and capital gain distributions on the parent’s return using Form 8814. The option has detailed eligibility limits and can produce a different tax result, so convenience should not be the only consideration.

Planning point

Before realizing a large gain in a custodial account, consider the child’s age, other unearned income, support, and the parent’s tax rate. Timing can change both the return that must be filed and the resulting tax.

The useful next step

Collect the child’s tax forms alongside the parents’ documents rather than treating the accounts separately. The IRS kiddie-tax overview and the annual Form 8615 instructions provide the current filing rules, but a coordinated review is often the cleanest way to spot the issue early.

This article provides general educational information and is not tax, legal, or investment advice. Thresholds and results depend on the tax year and the family’s facts.