If your child earns income from investments—such as interest, dividends, or capital gains—you may need to be aware of the “kiddie tax.” This tax rule can impact how much your family owes at tax time, especially if your child’s unearned income goes over a certain limit.
For the 2025 tax year, the kiddie tax applies when a child’s unearned income exceeds $2,600. The first $1,300 of that income is tax-free, and the next $1,300 is taxed at the child’s own (typically lower) tax rate. Any unearned income above $2,600 is taxed at the parent’s marginal tax rate, which could be much higher. This rule is designed to prevent families from shifting investment income to their children to take advantage of lower tax brackets.
The kiddie tax applies to dependent children who meet specific age and support criteria. This includes children under the age of 18 at the end of the tax year, 18-year-olds who did not earn more than half of their own support, and full-time students between the ages of 19 and 23 who also did not provide more than half of their own financial support. To be subject to the kiddie tax, the child must be required to file a tax return, must not file a joint return with a spouse, and at least one parent must be alive at the end of the tax year.
If your child is subject to the kiddie tax, you’ll need to file Form 8615 with their tax return to calculate how much is owed on the unearned income over $2,600. This rule applies regardless of whether the income is in the child’s name. In some cases, if a child has sufficient net investment income and meets specific income thresholds, they may also be subject to the 3.8% Net Investment Income Tax (NIIT).
However, if your child’s only income is from interest and dividends (including capital gains distributions), and their total income is less than $13,000, you may be able to report that income on your own tax return instead of filing one for your child. To do this, the child must meet all the following conditions:
- Be under age 19 (or under 24 if a full-time student) at the end of the tax year.
- Have gross income under $13,000, only from interest, ordinary dividends, or capital gains distributions.
- Not have made estimated tax payments or had tax withheld under backup withholding.
- Not have any other income sources.
- Be required to file a return unless this election is made.
- Not file a joint return.
- You must be the qualifying parent to make this election.
To take advantage of this option, you’ll need to include your child’s investment income on your tax return. Keep in mind that doing so means the income will be taxed at your marginal rate, and it could impact your eligibility for certain deductions or tax credits.
The kiddie tax rules are complex, but understanding how they work can help you make smart tax decisions for your family. If your child has investment income or you’re unsure whether the kiddie tax applies to your situation, contact your Stephano Slack tax manager or partner at 610-687-1600 or TaxInfo@StephanoSlack.com.
Author Brooke Carroll, CPA, manager oversees the individual tax practice at Stephano Slack’s office in Wilmington, Delaware. She brings exceptional value to client relationships by translating complex tax laws into clear guidance, helping clients confidently navigate their tax responsibilities. With 20 years of public accounting experience, Brooke offers a personalized approach to managing complex tax issues, particularly those involving the IRS, ensuring clients feel informed and supported throughout the process. Brooke can be contacted at 302-295-1025 or bcarroll@stephanoslack.com.
Disclaimer: This content is for informational purposes only and doesn’t constitute professional advice.
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