The Kiddie Tax: How Your Child's Investment Income Is Taxed

Filing & Brackets · TAX GUIDE

The kiddie tax stops parents from shifting investment income to children. A child's unearned income above $2,700 (2025) is taxed at the parent's rate. Here's how it works.

If your child has a savings account, investments, or a custodial brokerage account, the 'kiddie tax' may apply. It was created to stop families from shifting investment income to children in low tax brackets. Here's how the rules work in 2025 and how to plan around them.

What the Kiddie Tax Is

The kiddie tax applies to a child's unearned income — interest, dividends, capital gains, and other investment income (not wages from a job). For 2025, the brackets work like this:

• The first $1,350 of unearned income is tax-free (covered by the child's standard deduction)
• The next $1,350 is taxed at the child's own (low) rate
• Unearned income above $2,700 is taxed at the parents' marginal tax rate

Earned income from a job is always taxed at the child's own rate and is not subject to the kiddie tax.

Which Children Are Affected

The kiddie tax applies to:

• Children under age 18
• Children age 18 whose earned income doesn't exceed half their support
• Full-time students ages 19–23 whose earned income doesn't exceed half their support

Once a child is older than these ages — or earns enough to provide more than half their own support — the kiddie tax no longer applies and all their income is taxed at their own rate.

How It's Reported

There are two ways to handle a child's investment income:

• File a separate return for the child (Form 8615 is attached to calculate the kiddie tax), or
• In limited cases, report the child's income on the parents' return using Form 8814 — allowed only if the child's income is solely interest and dividends under a set limit.

Reporting on the parents' return is simpler but can sometimes push the parents into higher brackets or affect credits, so it's worth comparing both methods.

Planning Around the Kiddie Tax

Families can manage the kiddie tax with a few strategies:

• Favor growth assets that don't pay much current income, deferring gains until the child is older and out from under the rules
• Use tax-advantaged accounts like 529 plans for education savings
• Harvest gains in years when the child's income is below the thresholds
• Consider U.S. savings bonds or municipal bonds for lower current taxable income

The goal is to keep a child's annual unearned income near the thresholds where it's taxed lightly or not at all.

Frequently Asked Questions

Does my child's part-time job income trigger the kiddie tax?

No. The kiddie tax applies only to unearned (investment) income. Wages from a job are always taxed at the child's own rate, no matter how much they earn.

At what age does the kiddie tax stop applying?

Generally after age 18 — or after age 23 for full-time students — unless the child provides more than half of their own support through earned income, in which case it stops sooner.

How much investment income can my child have tax-free?

For 2025, the first $1,350 of unearned income is tax-free and the next $1,350 is taxed at the child's low rate. Amounts above $2,700 are taxed at the parents' marginal rate.

Can I report my child's income on my own return?

Sometimes. If the child's income is only interest and dividends under a set limit, you can use Form 8814 to include it on your return. Otherwise the child files their own return with Form 8615.