Understanding the kiddie tax: When do you pay tax on your child’s unearned income?

Does your child earn a passive income through custodial investment accounts? If so, something called “kiddie tax” could apply. Read on as we discuss important tax details so that when you’re tax planning, you’re not surprised by the extra income to report.

What is kiddie tax?

When you file taxes, you might need to factor in your child’s unearned income. This is often called the kiddie tax. Introduced as part of the Tax Reform Act of 1986, the kiddie tax is a set of rules designed to prevent parents from transferring large amounts of money earning assets, such as stock dividends or other investments, to accounts held by their children to reduce their tax liability (and potentially get a lower tax rate.)

Earned and unearned income definitions

Earned and unearned income are two terms that matter for kiddie tax because they impact how you’ll file taxes. We’ll define each before we dig into the guidelines of kiddie tax for parents.

What is earned income for a child?

Earned income is generated through active participation. It includes income like:

• Wages
• Salaries
• Professional fees
• Other amounts your child received in exchange for professional services

What is unearned income for a child?

Unearned income is income earned through passive participation; not generated from work, services, or business activities. It includes income from:

• Taxable interest
• Ordinary and qualified dividends
• Capital gains from sales
• Capital gain distributions
• Rents
• Royalties
• Taxable social security benefits
• Pension and annuity income
• Taxable scholarship and fellowship grants not reported on the child’s W-2
• Unemployment compensation
• Alimony
• Income received as the beneficiary of a trust
• Any other income that isn’t earned income

This unearned income can include amounts generated by assets that your child acquired using earned income, as well as nontaxable income such as tax-exempt interest. Note that this doesn’t count for the Foreign Earned Income Exclusion.

Kiddie tax 2024 rules

So, how does the kiddie tax work? Specific kiddie tax rules apply to certain children whose investment or unearned income is higher than the annual kiddie tax threshold. It comes down to income type, amount, filing status, parental situation, and if the minor falls within the kiddie tax age.

The kiddie tax rules apply to any child who:

• Has more than $2,600 of unearned income for the 2024 tax year, ($2,700 for the 2025 tax year)
• Has at least one living parent at the end of the tax year
• Doesn’t file a joint return
• Is required to file a tax return
• Is one of the following:
  • Under age 18 at year’s end,
  • Age 18 and didn’t have earned income that was more than half of their financial support, or
  • At least age 19 and under age 24 at year’s end, a full-time student, and didn’t have earned income that was more than half of their own financial support

Kiddie tax thresholds for 2024 and 2025

The kiddie tax threshold is adjusted each year to account for inflation.

Kiddie tax 2024 (taxes filed in 2025)

• The first $1,300 of unearned income is tax-free
• The next $1,300 of unearned income is taxed at the child’s tax rate
• Any earned income above $2,600 is taxed at parent or guardian’s marginal tax rate

Kiddie tax 2025 (taxes filed in 2026)

• The first $1,350 of unearned income is tax-free
• The next $1,350 of unearned income is taxed at the child’s tax rate
• Any earned income above $2,700 is taxed at parent or guardian’s marginal tax rate

Unearned income tax rules for children subject to kiddie tax

You should report a child’s unearned income if it’s above the limits listed above.

Even if you’re eligible to report your child’s unearned income on your return, you should consider filing a separate return for your child. Your filing choice should offer the best tax outcome based on your taxable income while adhering to the IRS’ kiddie tax rules.

Here are the disadvantages of reporting your child’s income on your return:

• You might have to pay more tax. Adding income to your return could:
  • Limit your IRA deduction
  • Limit your Student Loan Interest Deduction
  • Reduce the amount of itemized deductions, including medical expenses
• Your adjusted gross income (AGI) might increase, which:
  • Could affect your eligibility for certain credits. These credits include:
    • American Opportunity Credit
    • Lifetime Learning Credit
    • Earned Income Credit (EIC)
    • Child and Dependent Care Credit
  • Could lead you to pay the Alternative Minimum Tax (AMT) or increase the amount of AMT you owe
• You can’t claim deductions on your return that your child would be eligible for if they had filed a separate return.

It also might be better to file a separate return for your child if your child:

• Is blind
• Has investment expenses or other itemized deductions
• Is affected by early withdrawal of savings

Should you report tax on a child’s unearned income using Form 8814 or Form 8615?

Your child’s unearned income could be reported on two different forms: Form 8814 or Form 8615.

Form 8814: Parent’s Election to Report Child’s Interest and Dividends

When you report your child’s unearned income on your return, file Form 8814 with your return. You can include your child’s unearned income on your return if:

• Your child’s age was either:
  • Under age 19 at the end of the tax year, or
  • Under age 24, if they were a full-time student
• Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
• The child’s gross income was less than $13,000 in 2024 or $13,500 in 2025.
• The child would be required to file a tax return for the year if you didn’t make the election.
• The child doesn’t file a joint return for the tax year.
• Under your child’s name and Social Security number (SSN), you didn’t:
  • Make an estimated tax payment for the tax year.
  • Apply a prior year overpayment to the current tax year.
• No federal income tax was taken out of your child’s income under backup withholding rules.
• If you’re not filing jointly with your child’s other parent, you’re the parent whose tax rate would be used to determine the kiddie tax.

Form 8615: Tax for Certain Children Who Have Unearned Income

If the kiddie tax applies upon tax preparation, file Form 8615 with your child’s return. This form is used to figure out taxes on a child’s unearned income.

For 2024, a child must file Form 8615 if the following apply:

• They have more than $2,600 in unearned income (like interest or investments).
• They are required to file a tax return.
• They aren’t filing a joint tax return with a spouse.
• At least one parent is still alive at the end of the tax year.
• They fall within certain age limits. A child’s age for tax purposes is based on how old they are at the end of the tax year. They must file Form 8615 if any of these conditions apply:
  • They are under 18 at the end of the year.
  • They are 18 years old, and their earned income is less than half of what they need for support.
  • They are a full-time student, are at least age 19 and under age 24, and their earned income is less than half of their support.

Get help filing taxes and navigating the kiddie tax rule

Get help reporting kiddie tax and related unearned income from H&R Block.  Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.