Kiddie Tax

ANDY WALKER

March 10, 2025

What is the kiddie tax?

In the past, parents found that they could sometimes lower their income tax liability by shifting investment income into their children's names. This worked when parents were in a higher marginal tax bracket than their children were. Congress closed this loophole by enacting certain rules known as the "kiddie tax." The kiddie tax applies when children under certain ages have unearned income (for example, interest or dividend income) in excess of a certain amount ($2,700 in 2025). Any investment income over the limit is taxed at the parents' tax rates.

The kiddie tax floor is indexed for inflation. For 2025, the amount is $2,700. However, this amount may increase in future years.

The kiddie tax rules apply to: (1) those under age 18, (2) those age 18 whose earned income doesn't exceed one-half of their support, and (3) those ages 19 to 23 who are full-time students and whose earned income doesn't exceed one-half of their support.

A student is considered full time if he or she is a full-time student during any part of at least five months during the year.

The kiddie tax rules apply to children who are under the threshold age at the end of the tax year. The definition of a child includes not only natural offspring, but also legally adopted children and stepchildren. The rules apply whether or not a particular child is considered a dependent for tax purposes. The kiddie tax rules do not apply if the child is married and files a joint return. An exception also applies to distributions from certain qualified disability trusts.

Children and unearned income

Children subject to the kiddie tax are generally taxed at the parents' tax rates on any unearned income over a certain amount. For 2025, this amount is $2,700 (the first $1,350 is tax free and the next $1,350 is taxed at the child's rate). The kiddie tax rules apply to: (1) those under age 18, (2) those age 18 whose earned income doesn't exceed one-half of their support, and (3) those ages 19 to 23 who are full-time students and whose earned income doesn't exceed one-half of their support

Who reports the child's unearned income?

Generally speaking, if a child is subject to the kiddie tax, a federal income tax return should be filed by (or for) the child.

A parent of the child subject to the kiddie tax can generally elect to instead include the child's gross income on the parent's tax return if the child's gross income is more than $1,350 but less than $13,500.

Reporting unearned income on the child's return

If your child is reporting the unearned income on his or her own return, Form 8615 must be used to calculate the kiddie tax. You calculate your child's tax on Form 8615 according to the following steps:

Calculate the child's net investment income
Determine a tentative tax on this net investment income using the parents' tax rates.
Figure the child's tax

(Refer to IRS Publication 929 for detailed instructions on completing these three parts of Form 8615.)

Attach Form 8615 to your child's Form 1040, 1040A, or 1040NR. Enter your name and Social Security number and your child's name and Social Security number in the appropriate spaces on Form 8615. (Note that if you are married and you filed a joint return, you should enter the name and Social Security number listed first on your joint return.)

Who signs the child's return?

There are several points to note regarding signing the return:

If your child can't sign the return, you can sign his or her name in the space at the bottom of the tax return. After signing, you should add: "By (your name), parent (or guardian) for minor child."
If you sign on your child's behalf in this manner, you have the right to deal with the IRS on all matters connected with the return. If not, you may not be entitled to receive information from the IRS regarding the return. In addition, you won't be able to legally bind your child for a tax liability arising from the return.
If your child does sign the return, you may also wish to designate yourself as your child's representative. In such a case, you can receive information regarding your child's return. However, you can't (in most states) legally bind him or her to a tax liability.

Alternative minimum tax

A child may face alternative minimum tax (AMT) liability if one or both of the following apply:

He or she has items given preferential treatment under the tax laws
These items result in adjustments to taxable income that total more than the exemption amount

Tax preference items include accelerated depreciation, tax-exempt interest income, passive activity losses, and certain distributions from estates or trusts.

Children have a limited exemption amount regarding the alternative minimum tax. In 2025, the exemption amount is the lesser of $88,100 or the sum of the child's earned income plus $9,550. The instructions for Form 6251, Alternative Minimum Tax — Individuals, includes a worksheet for calculating the child's exemption amount.