By Harry Prabandham · Updated September 28, 2026
Tax Planning
Kiddie Tax Rules for 2026: Thresholds, Ages, and Custodial Accounts
In 2026 a child's unearned income above $2,700 is generally taxed at the parent's rate, up to age 18, or through 23 for full-time students.
Kiddie Tax Rules for 2026: Thresholds, Ages, and Custodial Accounts
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What is the kiddie tax?
- The kiddie tax taxes part of a child's unearned income, such as interest, dividends, and capital gains, at the parent's tax rate.
- In 2026 the first $1,350 of unearned income is offset by the child's standard deduction and the next $1,350 is taxed at the child's rate.
- Unearned income above $2,700 in 2026 is generally taxed at the parent's marginal rate.
- Wages a child earns from a job are taxed at the child's own rates.
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Full Guide
What is the kiddie tax?
- The kiddie tax taxes part of a child's unearned income, such as interest, dividends, and capital gains, at the parent's tax rate.
- In 2026 the first $1,350 of unearned income is offset by the child's standard deduction and the next $1,350 is taxed at the child's rate.
- Unearned income above $2,700 in 2026 is generally taxed at the parent's marginal rate.
- Wages a child earns from a job are taxed at the child's own rates.
Which children are subject to it?
- Children under 18 at the end of the year are covered.
- Children who are 18, or full-time students ages 19 through 23, are covered if their earned income does not exceed half of their own support.
- At least one parent must be alive at year-end, and a child filing a joint return is not covered.
- The rule applies only if the child's unearned income exceeds $2,700 in 2026.
How do custodial accounts trigger it?
- Income earned in an UGMA or UTMA account belongs to the child and counts as the child's unearned income.
- Gifts into custodial accounts are irrevocable, and the child controls the assets at the age of majority set by state law.
- Realizing large capital gains inside the account can push income well past the threshold in a single year.
- Custodial assets are generally counted as the student's assets for federal financial aid.
How is the tax reported?
- The child files Form 8615 with their own return when the kiddie tax applies.
- Parents can instead elect to report the child's income on their own return using Form 8814 if the child's income is only interest and dividends and is under $13,500 in 2026.
- The Form 8814 election can raise the parent's AGI, which can affect deductions, credits, and surtaxes.
- Cost-basis records for custodial holdings are needed to report gains correctly.
What approaches reduce the kiddie tax?
- Tax-exempt municipal bond interest is not taxable unearned income for federal purposes.
- Holdings with low dividends defer taxable income until shares are sold, which can be timed for after the child ages out.
- Earnings in a 529 plan are not taxed when used for qualified education expenses, so the kiddie tax does not reach them.
- A child with earned income can contribute to a Roth IRA, where growth is not currently taxed.
Key takeaways
- In 2026, a child's unearned income above $2,700 is generally taxed at the parent's rate.
- It covers children under 18, and some 18-year-olds and full-time students through age 23.
- Custodial accounts are the most common trigger; 529 plans and Roth IRAs are alternatives with their own rules.
- Before large gifts to minors, confirm the tax and financial aid effects with a CPA.
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