Who is subject to the Kiddie tax rules when filing taxes in 2026?

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Casey Epton, CPA, is a Senior Tax Advisor at Deduction, where he helped design Taylor, CPAI from day one, building an AI tax agent that works seamlessly for both clients and the CPAs who verify every return.

Last updated:

Sep 2026

The 'kiddie tax', formally called the tax on unearned income of certain children under IRC §1(g), applies to children and young adults who have more than $2,700 in unearned income in 2026 and meet specific age and dependency conditions. When it applies, the unearned income above the threshold is taxed at the parent's marginal tax rate rather than the child's typically lower rate. The tax is calculated on IRS Form 8615 and reported on the child's own return.

1. What Is the Kiddie Tax and Why Does It Exist?

Congress enacted the kiddie tax in 1986 to prevent parents from shifting investment income, dividends, interest, capital gains, into their children's names in order to have it taxed at the child's lower rate. Without this rule, high-income parents with large investment portfolios could substantially reduce their tax liability by placing income-producing assets in custodial or trust accounts for their minor children.

The kiddie tax does not affect earned income such as wages, tips, or self-employment income. It applies only to unearned income, income derived from investments and certain passive sources.

2. Who Must File Form 8615 in 2026 - The Four Conditions

Form 8615 must be filed with a child's tax return when ALL four of the following conditions are met:

The child had more than $2,700 in net unearned income for the tax year
The child is required to file a federal tax return
The child does not file a joint return with a spouse
At least one of the child's parents was alive at the end of the tax year

If any of these conditions is not met, the child is not subject to the kiddie tax for that year.

3. The Age Rules - Who Qualifies as a 'Child' Under §1(g)

The term 'child' for kiddie tax purposes extends beyond minor children. The following age groups are covered:

Under age 18 at the end of the tax year, covered automatically, regardless of earned income
Age 18 at the end of the tax year, covered only if the child's earned income did not exceed more than half of their total support costs for the year
Full-time students age 19 through 23 at the end of the tax year, covered only if earned income did not exceed more than half of the child's total support costs

A child who is age 24 or older is never subject to the kiddie tax, regardless of their income sources. A child who is age 18 or a full-time student ages 19–23 and whose earned income exceeds more than half of their own support is also exempt, because they are effectively self-supporting.

The term 'child' for these rules includes biological children, adopted children, and stepchildren. It does not require that the child be claimed as a dependent on the parent's tax return in the year the kiddie tax applies.

4. The Support Test - How It Works for Ages 18–23

For children who are age 18, or full-time students ages 19–23, the support test determines whether the kiddie tax applies. 'Support' includes the fair market value of all amounts spent on the child's food, housing, clothing, education, medical care, transportation, and entertainment, regardless of who paid.

Scholarships, grants, and financial aid do not count as support provided by the child for this test. If the child's earned income (wages, tips, net self-employment) does not exceed 50% of their total support, they remain subject to the kiddie tax. If earned income exceeds 50% of support, they are not subject.

5. What Counts as Unearned Income?

For purposes of the kiddie tax, unearned income includes all income other than compensation for work actually performed. Common examples include:

Taxable interest and dividends (including qualified dividends and ordinary dividends)
Capital gains and capital gain distributions
Rents, royalties, and passive partnership income
Taxable portions of pension, annuity, and trust distributions
Taxable scholarship and fellowship income not reported on Form W-2
Taxable 529 plan distributions (non-qualified distributions)

Capital losses can offset capital gains. If capital losses exceed gains, up to $3,000 of the excess may reduce other unearned income when calculating the kiddie tax base.

6. How the Tax Is Calculated - The 2026 Brackets

The kiddie tax operates in three tiers for 2026:

First $1,350 of unearned income, tax-free (offset by the dependent's standard deduction allocation)
Next $1,350 of unearned income (up to $2,700 total), taxed at the child's own tax rate
Unearned income above $2,700, taxed at the parent's marginal tax rate (the 'kiddie tax')

Form 8615 calculates the tax owed at the parent's rate on the income above $2,700 and adds it to the tax computed on the rest of the child's income at the child's own rate. If there are multiple children in the same household also subject to the kiddie tax, the net unearned income of the siblings is aggregated for the calculation.

A child subject to the kiddie tax may also be subject to the Net Investment Income Tax (NIIT) of 3.8% under IRC §1411 if their modified AGI exceeds the NIIT threshold. While unusual for most children, this can apply to a minor who inherits a significant investment portfolio or trust account.

7. The Form 8814 Alternative - Parent's Election

If the child's unearned income consists only of interest, dividends, and capital gain distributions (not other types of unearned income), and the total is less than $13,500 in 2026, parents may elect to report the child's income directly on their own return using Form 8814 rather than having the child file Form 8615. Under this election:

The child does not need to file a separate return
The first $1,350 is excluded; the next $1,350 is taxed at 10%; amounts above $2,700 are reported as part of the parent's gross income
This election may actually result in more total tax because the child's income could push the parent into a higher bracket or reduce phaseout-dependent credits, model both approaches before choosing

8. Common Situations Where the Kiddie Tax Applies

UTMA/UGMA custodial accounts with dividends and capital gains over $2,700
Trust distributions that include taxable investment income
College-age students (under 24) with substantial taxable investment accounts
A dependent child who inherited securities or a portion of a taxable estate
Non-qualified 529 distributions, the earnings portion may be treated as unearned income

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