The “kiddie tax” exists to stop a straightforward move: parents shifting investment accounts into a child’s name so the income gets taxed at the child’s low rate instead of the parents’ higher one. In 2026, the rule taxes a child’s unearned income above a set threshold at the parents’ marginal rate instead, unchanged from where it landed in 2025.
The Two Thresholds: $1,350 and $2,700
For 2026, the first $1,350 of a child’s unearned income is tax-free (covered by the dependent standard deduction), the next $1,350 is taxed at the child’s own tax rate, and everything above $2,700 total is taxed at the parents’ marginal rate. Once unearned income crosses that $2,700 line, the child generally needs to file their own return using IRS Form 8615 to calculate the tax at the parents’ rate.
Who It Applies To
The kiddie tax applies to dependent children under 19, and to full-time students under 24 who don’t cover more than half their own support with earned income. It stops applying once the child turns 19 (or 24 for the student exception) and can support themselves, or once they’re no longer a dependent.
Earned vs. Unearned Income
Only unearned income counts — interest, dividends, capital gains, and similar investment income. A teenager’s wages from an actual job are taxed at their own rate no matter how much they earn; the kiddie tax was never about earned income and doesn’t touch it. This is also why custodial brokerage accounts (UTMA/UGMA) generating capital gains are the classic case this rule targets — see our guide to 2026 capital gains brackets for what those gains would cost at an adult’s rate for comparison.
Filing: Form 8615 vs. the Parents’ Election
There are two ways to handle it on paper. The child can file their own return with Form 8615 attached, calculating the tax at the parents’ rate. Alternatively, if the child’s income is only from interest and dividends and stays under a set cap, the parents can elect to report it directly on their own return using Form 8814 instead, skipping a separate return for the child entirely — though this can sometimes push the parents’ own income into different phase-out ranges, so it’s worth running both ways before choosing.
Why It Matters for UTMA/UGMA and 529 Planning
Because the kiddie tax caps how much a custodial account can shelter at a child’s low rate, it’s part of why 529 plans stay the default vehicle for education savings instead of a taxable custodial account — 529 growth used for qualified expenses isn’t taxed at all, kiddie tax or otherwise. And if a 529 ends up overfunded, the 529-to-Roth IRA rollover rules now give that leftover money a tax-advantaged home in the child’s own retirement account instead of sitting in a taxable account where the kiddie tax could apply to its earnings.
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