The Kiddie Tax, Explained: What Every Custodial-Account Parent Should Know
The 2026 thresholds, who it applies to, how capital gains fit in, and the choice between Form 8615 and Form 8814.
Key takeaways
- For 2026, a child's first $1,350 of unearned income is tax-free, the next $1,350 is taxed at the child's rates, and above $2,700 at the parent's rate.
- It applies to children under 18, some 18-year-olds, and full-time students ages 19 through 23 who don't earn more than half their support.
- Long-term gains and qualified dividends up to $2,700 usually get the child's 0% rate; above that, the parent's capital-gains rate applies.
The kiddie tax taxes part of a child's investment income at the parent's tax rate. For 2026, the first $1,350 of a child's unearned income is tax-free, the next $1,350 is taxed at the child's rates, and anything above $2,700 is taxed at the parent's rate. It applies to children under 18 and, in some cases, to students up to age 23.
The rule exists so a parent in a high bracket can't shift investment income to a child just to pay less tax. For most families with a modest custodial account, the bill is small or zero. For how it fits with contributions and withdrawals, see how UTMA accounts are taxed.
2026 kiddie-tax thresholds
These are the federal figures for the 2026 tax year, set in IRS Revenue Procedure 2025-32. They're unchanged from 2025.
| 2026 figure | Amount | What it means |
|---|---|---|
| Tax-free tier | First $1,350 | Covered by the child's standard deduction |
| Child's-rate tier | Next $1,350 | 10% on interest and ordinary dividends, usually 0% on qualified dividends and long-term gains |
| Kiddie-tax threshold | Over $2,700 | Taxed at the parent's rate, figured on Form 8615 |
| Form 8814 limit | Under $13,500 | The child's income must stay under this for a parent to report it on their own return |
The $1,350 base is indexed for inflation and can change each year. The other three numbers are multiples of it.
Who the kiddie tax applies to
It applies to a child whose unearned income is over $2,700 and who, at the end of the year, was one of these:
- Under 18.
- Exactly 18, with earned income that didn't cover more than half of their own support.
- A full-time student age 19 through 23, with earned income that didn't cover more than half of their support.
At least one parent must be alive at year-end, and a child who files a joint return is excluded. A 24-year-old is never subject to it.
It only reaches unearned income: interest, dividends, capital gains and other investment income. Wages from a job are taxed under the normal rules, which is part of why a teen's first job opens different options.
How capital gains and qualified dividends interact with the kiddie tax
Long-term gains and qualified dividends keep their lower capital-gains rates under the kiddie tax. What changes is whose bracket sets the rate.
- Up to $2,700: the child's own brackets apply. A child with little other income is usually in the 0% capital-gains bracket, so this slice of long-term gains and qualified dividends often owes no federal tax.
- Above $2,700: the parent's capital-gains rate applies, which is 15% for many families and 0% or 20% for some.
- Short-term gains (on investments owned a year or less), interest and ordinary dividends are taxed at ordinary rates in every tier.
That 0% room is what tax-gain harvesting in a UTMA uses. Any interest and dividends paid that year take up part of the same room first.
A worked example
Say your 12-year-old's UTMA earns $3,200 this year, all from interest and ordinary dividends, and you're in the 22% bracket.
| Tier | Amount | Rate | Tax |
|---|---|---|---|
| First $1,350 | $1,350 | 0% | $0 |
| Next $1,350 | $1,350 | Child's 10% | $135 |
| Above $2,700 | $500 | Parent's 22% | $110 |
That's $245 of federal tax. If the same $3,200 came from qualified dividends and long-term gains, the middle tier would usually owe $0, and the top $500 would be taxed at your 15% capital-gains rate, or $75.
Which accounts the kiddie tax touches
| Account | Kiddie tax applies? |
|---|---|
| UTMA or UGMA custodial account | Yes. Its income is the child's unearned income. |
| Savings account or bonds in the child's name | Yes, on taxable interest |
| Custodial Roth IRA | No. Growth inside the account isn't taxed each year. |
| 529 plan | No. Growth is tax-deferred and tax-free for qualified education costs. |
Form 8615 vs. Form 8814
Form 8615 figures the kiddie tax on the child's own return. Form 8814 lets a parent report the child's income on the parent's return instead, but only in simple cases.
- Form 8615 is filed with the child's return when the child's unearned income is over $2,700 and the age rules above apply. The child keeps the 0% capital-gains rate on the middle tier.
- Form 8814 works only if the child is under 19 (or under 24 as a full-time student), their only income is interest and dividends (including fund capital gain distributions), and the total is under $13,500. Income between $1,350 and $2,700 is taxed at a flat 10%, so at most $135, and the rest is added to your income.
Form 8814 saves filing a second return. It can cost more, because the middle tier loses the child's 0% rate and your adjusted gross income goes up. A sale of shares at a gain rules it out for that year.
What keeps the bill small
- The account type. Income inside a Roth IRA or 529 never enters the kiddie-tax math.
- The kind of income. Unrealized growth isn't taxed until it's sold, while interest and dividends count every year.
- The size of the account. A small balance rarely earns enough to pass $1,350.
What to do before tax season
- List which of your kid's accounts are taxable (UTMA, UGMA, savings) and which aren't (Roth IRA, 529).
- Pull each taxable account's 1099 and total the interest, dividends and realized gains.
- If the total is near $2,700, compare Form 8615 with Form 8814 with your tax preparer.
If those accounts sit at different institutions, MemoryBank shows each child their UTMA, 529, Roth IRA and savings in one kid-friendly dashboard, so the taxable ones are easy to spot. MemoryBank is not a brokerage. It cannot receive, keep or transfer securities.
This is general education, not tax advice. Confirm your family's numbers with a tax professional.
Frequently asked questions
What is the kiddie tax?
A federal rule that taxes part of a child's unearned income, such as dividends, interest and capital gains, at the parent's rate. For 2026 it applies to unearned income above $2,700. Wages from a job aren't subject to it.
What are the 2026 kiddie tax thresholds?
For 2026, the first $1,350 of a child's unearned income is tax-free, the next $1,350 is taxed at the child's rates, and anything above $2,700 is taxed at the parent's rate. A parent can use Form 8814 if the child's income is under $13,500.
Does the kiddie tax apply to full-time students?
Yes, through age 23. A full-time student who is 19 to 23 at year-end is covered if their earned income doesn't pay for more than half of their support. At 24 it no longer applies.
Are capital gains subject to the kiddie tax?
Yes, they count as unearned income. Long-term gains and qualified dividends up to the kiddie-tax threshold ($2,700 in 2026) usually get the child's 0% rate, and anything above it is taxed at the parent's capital-gains rate. The threshold is indexed and adjusts each January.
What is the difference between Form 8615 and Form 8814?
Form 8615 goes on the child's return and figures the kiddie tax there. Form 8814 lets a parent report the child's interest and dividends on the parent's return, if the child's income is under $13,500 and includes no realized gains from sales. Form 8814 is simpler but can cost more.
Does the kiddie tax apply to a 529 or a custodial Roth IRA?
No. Growth inside a 529 or a Roth IRA isn't reported as the child's yearly income, so it doesn't count toward the thresholds.
Written by Josh Ackerman
Founder of MemoryBank. A computer scientist and M.B.A. with 20+ years of investing and technology experience, Josh built the first MemoryBank in his basement so his three kids could watch their own accounts grow. More about Josh →
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MemoryBank is a display and education tool, not a financial advisor. Nothing here is investment, tax, or legal advice. Verify program details with the IRS, your tax advisor, or a licensed financial professional before making decisions.