Preliminary Work and Taxpayer Data · Preliminary work to prepare tax returns
Minor children's unearned income — the kiddie tax
tax year · reviewed 2026-08-19 · I. Ohu
The rule
The kiddie tax stops a family from moving investment income to a child in order to have it taxed in a lower bracket. Where it applies, the child’s tax is the greater of the tax computed normally, or the tax on the child’s income reduced by net unearned income plus the child’s share of the allocable parental tax (IRC § 1(g)(1)). The child still files their own return; what changes is the rate applied to one slice of their income.
Who it applies to. Section 1(g)(2) sets three conditions, all of which must hold:
- Age. The rule reaches a child who has not attained age 18 before the close of the year, or who has attained 18 and meets the § 152(c)(3) age requirement while having earned income not exceeding one-half of their own supportTY2026. So it is not simply a rule about minors: a 19-year-old, or a full-time student under 24, is caught unless their own earned income exceeds half of their support.
- A living parent. Either parent must be alive at the close of the taxable year.
- No joint return. The child must not file a joint return for the year.
What is taxed at the parent’s rate. Only net unearned income, which § 1(g)(4)(A) defines as unearned adjusted gross income reduced by two amounts: the § 63(c)(5)(A) dependent standard deduction floor, plus the greater of that same floor or the itemised deductions directly connected with producing that income. Where the child does not itemise, the reduction is therefore twice the floor. For 2026 the floor is $1,350 — the amount in IRC § 1(g)(4)(A)(ii)(I) for taxable years beginning in 2026, the same figure as the § 63(c)(5)(A) dependent standard deduction floorTY2026, which puts the practical threshold at $2,700 of unearned income before any is taxed at the parent's rate — twice the § 1(g)(4)(A)(ii)(I) amount, being that amount plus the greater of it or directly connected itemized deductionsTY2026. Net unearned income can never exceed the child’s taxable income (§ 1(g)(4)(B)).
The parental election. Section 1(g)(7) lets a parent report the child’s income on their own return instead, and the child is then treated as having no gross income and need not file. The conditions are 4 — the child's gross income is only from interest and dividends, it falls within the stated range, no estimated tax payments or backup withholding stand in the child's name and TIN, and the parent electsTY2026, and the income range for 2026 is the child's gross income must be more than $1,350 and less than $13,500 — more than the § 1(g)(4)(A)(ii)(I) amount and less than ten times itTY2026.
Current figures
| Item | 2026 |
|---|---|
| Section 1(g)(4)(A)(ii)(I) amount | $1,350 — the amount in IRC § 1(g)(4)(A)(ii)(I) for taxable years beginning in 2026, the same figure as the § 63(c)(5)(A) dependent standard deduction floorTY2026 |
| Unearned income before any is taxed at the parent’s rate | $2,700 of unearned income before any is taxed at the parent's rate — twice the § 1(g)(4)(A)(ii)(I) amount, being that amount plus the greater of it or directly connected itemized deductionsTY2026 |
| Parental election — child’s gross income range | the child's gross income must be more than $1,350 and less than $13,500 — more than the § 1(g)(4)(A)(ii)(I) amount and less than ten times itTY2026 |
| Age test | a child who has not attained age 18 before the close of the year, or who has attained 18 and meets the § 152(c)(3) age requirement while having earned income not exceeding one-half of their own supportTY2026 |
| Parental election conditions | 4 — the child's gross income is only from interest and dividends, it falls within the stated range, no estimated tax payments or backup withholding stand in the child's name and TIN, and the parent electsTY2026 |
How it works in practice
Read the age test twice. The most common error is treating this as a rule about children under 18. It reaches an 18-year-old, and a student under 24, whenever their earned income does not exceed one-half of their own support. A college student living largely on family support, with a summer job and a brokerage account, is squarely within it. Conversely, a 17-year-old who genuinely supports themselves through work is still caught, because the earned income escape applies only to the over-18 limb.
Three layers, not two. The first slice of unearned income is absorbed by the dependent standard deduction; the second slice is taxed at the child’s rate; only what remains is taxed at the parent’s. Describing the rule as “unearned income above the threshold is taxed at the parent’s rate” is right about the third layer and silent about the second, which is where most small accounts land.
Which parent’s rate. Section 1(g)(5) supplies the answer where parents are not married, are separated, or file separately, and the choice is not the taxpayer’s — it is determined by the statute. Get this right before computing anything, because the whole allocable parental tax turns on it.
The allocable parental tax is shared across siblings. Section 1(g)(3) computes the additional tax the parent would pay if their income included the net unearned income of all children to whom the subsection applies, and then allocates it. Two children with investment accounts are not two independent computations.
The election trades a return for a rate. Making the § 1(g)(7) election avoids preparing a return for the child, which is its attraction. It is available only where the child’s income is only interest and dividends, within the stated range, and where no estimated payments or backup withholding stand in the child’s name and taxpayer identification number. That last condition catches families who have already had tax withheld at the child’s account — the election is then unavailable and the withheld amount can only be recovered on the child’s own return.
Watch for the account that grew. A custodial account that produced trivial income for years can cross the threshold quietly after a good year or a large distribution. The intake question is not “does the child have income” but “does the child have an account”, and it should be asked every year rather than once.
The nineteen-year-old with a summer job
Théodora Nkemdirim is 19, a full-time student, and lives at home. She earned about 4,200 dollars over the summer and her custodial brokerage account produced roughly 6,800 dollars of dividends and interest. Her total support for the year was around 24,000 dollars, most of it provided by her parents. The family assumes the kiddie tax stopped applying when she turned 18.
It did not. Section 1(g)(2)(A)(ii) reaches a child who has attained 18 and meets the § 152(c)(3) age requirement — she is a student under 24 — where earned income does not exceed one-half of the individual’s support. Half of 24,000 dollars is 12,000, and her 4,200 dollars of earnings is well under it. She is within the rule. Her first 1,350 dollars of unearned income is absorbed by the dependent standard deduction, the next 1,350 is taxed at her own rate, and the remaining 4,100 is taxed at her parents’ rate through the allocable parental tax.
The election that was not available
The Halvorsen-Achebe family has a child with 5,600 dollars of dividend income and nothing else. The income is comfortably inside the election range and the parents would rather not prepare a separate return. Their bank, however, applied backup withholding to the account earlier in the year because a certification was missing.
The election is closed to them. Section 1(g)(7)(A)(iii) requires that no estimated tax payments have been made in the child’s name and TIN and that no amount has been withheld under the backup withholding provision. Withholding has occurred, so the election cannot be made — and there is a second reason to file the child’s return anyway, because the withheld tax is only recoverable through it. The lesson for the following year is to fix the certification, not to fix the return.
Two children, one computation
Both Obadiah and Rosalind Fitzwilliam-Vasquez have custodial accounts producing net unearned income. Their preparer computes each child’s allocable parental tax separately, as though the other did not exist.
That overstates the total. Section 1(g)(3)(A) defines the allocable parental tax as the excess of the tax on the parent’s income including the net unearned income of all children to whom the subsection applies over the tax without it — a single computation on the combined amount, then allocated among the children. Doing it twice independently double-counts the bracket run-up. The correct sequence is one parental computation, then an allocation, and the error is invisible unless someone notices the siblings.
How this has changed
The kiddie tax was enacted by the Tax Reform Act of 1986 and originally applied only to children under 14. The age reach was extended twice — to under 18, and then by the Small Business and Work Opportunity Tax Act of 2007 to the under-19 and student-under-24 tests with the earned income comparison that still governs.
The most disruptive change was brief. The Tax Cuts and Jobs Act replaced the parental rate with the trust and estate rate schedule for 2018 and later years, which produced sharply higher tax on modest amounts of unearned income and hit families of deceased military personnel and some scholarship recipients particularly hard. The SECURE Act of 2019 repealed that change and restored the parental rate, with an election to apply the restoration retroactively to 2018 and 2019. Material written between 2018 and 2020 may describe the trust rate schedule as current; it is not, and has not been for five years.
What remains is the annual figure. The § 1(g)(4)(A)(ii)(I) amount is tied to the § 63(c)(5)(A) dependent standard deduction floor and is published each year in the inflation revenue procedure — for 2026 in Rev. Proc. 2025-32 § 3.02. Look it up rather than remembering it.
Exam focus
Know the three conditions in § 1(g)(2) and, in particular, that the age test reaches students under 24 and that the earned income comparison — earned income not exceeding half of support — applies only to the over-18 limb. Know that the threshold is twice the § 63(c)(5)(A) amount and that income between the two figures is taxed at the child’s own rate. Know the four conditions for the parental election, especially that the child’s income must be only interest and dividends and that backup withholding or an estimated payment in the child’s name defeats it. Expect a computation that supplies support figures to test the earned income comparison.
Check yourself
1. Which child is not subject to the kiddie tax?
A. A 16-year-old with substantial earned income and unearned income above the threshold B. A 19-year-old full-time student whose earned income is one-third of their support C. A 22-year-old full-time student whose earned income exceeds one-half of their support D. A 12-year-old whose parents are both alive
Answer: C. The earned income comparison applies to the over-18 limb, and exceeding half of support takes the child outside the rule; a child under 18 is within it regardless of earnings.
2. How much unearned income may a child have in 2026 before any of it is taxed at the parent’s rate?
A. $1,350 B. $2,700 C. $5,400 D. $13,500
Answer: B. The definition of net unearned income subtracts the § 63(c)(5)(A) amount twice where the child does not itemise.
3. Income between the dependent standard deduction floor and the kiddie tax threshold is taxed at what rate?
A. Zero B. The child’s own rate C. The parent’s rate D. The trust and estate rate
Answer: B. Only net unearned income above the threshold reaches the parent’s rate.
4. A child’s only income is $6,000 of dividends, and backup withholding was applied to the account. May the parent elect to report the income on their own return?
A. Yes; the income is within the range and is only dividends B. No; the election is unavailable where any amount has been withheld under the backup withholding provision C. Yes, if the withholding is refunded first D. Only if the child is under 18
Answer: B — and the child should file anyway, because the withheld tax is recoverable only on the child’s return.
5. Two children of the same parent each have net unearned income. How is the allocable parental tax computed?
A. Separately for each child B. Once, on the parent’s income including the net unearned income of all affected children, then allocated C. Only for the child with the larger amount D. By adding the children’s own tax liabilities
Answer: B.
Change log
- Initial draft against IRC § 1(g) and Rev. Proc. 2025-32 § 3.02.
Related topics
- Qualifications for dependency 1.1.1.i
- Filing requirements and due date 1.1.1.d
- Taxpayer biographical information (e.g., date of birth, marital status, dependents, identity protection PIN, state issued photo ID) 1.1.1.b
- Sources of applicable deductions (e.g., itemized, standard) 1.1.1.h
- Alternative minimum tax and credit for prior year 1.4.1.a