What Is the Kiddie Tax Rule and How Does It Work?
Navigate the Kiddie Tax rule: understand how specific income earned by minors is taxed to prevent income shifting.
The Kiddie Tax is a rule for taxing certain income of children. Its purpose is to prevent families from lowering their overall tax burden by transferring income-generating assets to children in lower tax brackets. This rule ensures a portion of a child’s unearned income is taxed at a rate similar to their parents, rather than at the child’s lower individual tax rate. It applies to unearned income, not wages or salaries.
Who is Subject to the Kiddie Tax
The Kiddie Tax applies to children meeting specific age and income criteria at the end of the tax year. A child is subject to the Kiddie Tax if they are under age 19. It can also apply to full-time students aged 19 but under 24, provided they do not provide more than half of their own support from earned income. An 18-year-old who is not a full-time student also falls under these rules if their earned income is less than or equal to 50% of their support.
Other conditions must be met. The child must have more than $2,700 in unearned income for the 2025 tax year. They must also be required to file a tax return and have at least one living parent at the end of the tax year. The Kiddie Tax does not apply if the child is married and files a joint tax return.
Income Subject to the Kiddie Tax
The Kiddie Tax targets “unearned income,” which is income from sources other than wages, salaries, or compensation for personal services. This income is generated passively, such as from investments or gifts. The tax applies to “net unearned income,” which is the child’s total unearned income reduced by allowable deductions. Examples include:
Taxable interest
Dividends
Capital gains from sales
Rents
Royalties
Income received as a beneficiary of a trust
Calculating the Kiddie Tax
Calculating the Kiddie Tax involves a process considering the child’s unearned income thresholds for the tax year. For 2025, the first $1,350 of a child’s unearned income is tax-free, covered by the standard deduction for dependents. The next $1,350 of unearned income is taxed at the child’s own tax rate. Any unearned income exceeding $2,700 for 2025 is then subject to the Kiddie Tax.
This excess unearned income is taxed at the parent’s marginal tax rate. If parents file separately, the tax rate of the parent with the higher taxable income is used for this calculation.
Reporting Kiddie Tax Income
Reporting income subject to the Kiddie Tax can be done in two primary ways. One method involves the child filing their own tax return and attaching Form 8615, “Tax for Certain Children Who Have Unearned Income,” to their Form 1040. This approach is necessary if the child’s unearned income exceeds the annual threshold of $2,700 for the 2025 tax year.
Alternatively, parents can elect to report the child’s interest and dividends on their own tax return using Form 8814, “Parents’ Election to Report Child’s Interest and Dividends.” This option is available if the child’s gross income is solely from interest and dividends and is below $13,500 for the 2025 tax year. Using Form 8814 can simplify the filing process by consolidating the income on the parent’s return.