The “Kiddie” Tax or How Children Are Taxed

Children are subject to federal income taxes just like adults, but special rules—commonly known as the "Kiddie Tax"—apply in many cases. These rules can be complex; this is general information only. For your specific situation (especially in Nampa, Idaho, where state taxes generally follow federal rules for dependents), consult a qualified tax advisor or CPA.

The General Rule

Children are treated as separate taxpayers, and their income is taxed under the single-filer tax brackets (the same progressive rates that apply to unmarried individuals). For 2026, federal income tax rates start at 10% and rise to 37% at higher taxable income levels (no 39.6% bracket exists under current law).

Who the Special (Kiddie Tax) Rules Apply To

The Kiddie Tax typically applies to unearned income (e.g., interest, dividends, capital gains) for children who meet one of these criteria at the end of the tax year:

• Under age 18.
• Age 18 and earned income (e.g., wages) does not exceed half of their support.
• Age 19–23 and a full-time student with earned income that does not exceed half of their support.

If a child doesn’t meet these age or support tests, their income (earned or unearned) is taxed at their own rates without the Kiddie Tax.

Earned Income (e.g., Wages from a Job)

• Earned income is taxed at the child’s own marginal rates.
• For dependents in 2026, the standard deduction is the greater of:
• $1,350, or
• Earned income + $450 (up to the full single standard deduction of $16,100).
• This means the first roughly $1,350–$16,100 of earned income is often tax-free (depending on the amount), with any excess taxed starting at 10%.
• Even with low earnings, a tax return may be required (or beneficial) to claim a refund of withheld taxes.

Unearned Income (Interest, Dividends, Capital Gains)

If the child meets the age/support criteria above and has unearned income:

• The first $1,350 of unearned income is tax-free (covered by the dependent’s standard deduction for unearned income purposes).
• The next $1,350 is taxed at the child’s own marginal rate (usually 10%).
• Any unearned income above $2,700 is taxed at the parents’ marginal tax rate (to prevent shifting investments to children for lower taxes).

This is the core of the Kiddie Tax, calculated on Form 8615 (attached to the child’s return) if unearned income exceeds $2,700. Parents may elect to report the child’s income on their own return (using Form 8814) if it qualifies (typically under $13,500 in total gross income, primarily from interest/dividends).

More Complex Situations

Interactions with the parents’ taxes (e.g., Alternative Minimum Tax, large capital gains, or Net Investment Income Tax at 3.8%) can make calculations more complex. In such cases, professional advice is crucial.

These thresholds ($1,350 / $1,350 / $2,700) are inflation-adjusted and remain unchanged for 2026, according to IRS Revenue Procedure 2025-32. Rules may change, so review the latest IRS Publication 929 (Tax Rules for Children and Dependents), Topic No. 553, or consult a tax professional for your family’s details. If your child has investment accounts (e.g., UGMA/UTMA), consider strategies like low-yield investments to stay below thresholds.