Kiddie Tax Rules for 2026: Thresholds, Rates, and How to Calculate
Updated 11 April 2026
The kiddie tax applies to unearned income (interest, dividends, capital gains) held in a child's name. For most kids savings accounts, the kiddie tax is irrelevant because the interest earned stays well below the threshold. But understanding the rules is important for families with custodial investment accounts or larger savings balances.
2026 Kiddie Tax Thresholds
First $1,350
Tax-Free
Covered by dependent's standard deduction
Next $1,350
Child's Rate
Typically 10% federal ($1,351 to $2,700)
Above $2,700
Parent's Rate
Taxed at parent's marginal rate
At What Balance Does the Kiddie Tax Apply?
For a pure savings account (interest only, no dividends or capital gains), here is the approximate balance needed to reach each kiddie tax threshold at different APY rates:
| APY | $1,350 Threshold | $2,700 Threshold | Accounts at this rate |
|---|---|---|---|
| 2.00% | $67,500 | $135,000 | USAlliance |
| 2.50% | $54,000 | $108,000 | Capital One |
| 3.10% | $43,548 | $87,097 | Alliant CU |
| 4.00% | $33,750 | $67,500 | Mid-tier CU |
| 5.00% | $27,000 | $54,000 | Greenlight Infinity |
| 7.00% | $19,286 | $38,571 | Spectrum CU (first $1K) |
At Alliant's 3.10% APY, a child would need approximately $43,500 in the account before the first $1,350 of interest is earned. Very few children have savings account balances that high. The kiddie tax is far more relevant for custodial brokerage accounts where dividends and capital gains can generate more income at lower balances.
Who the Kiddie Tax Applies To
Under age 19: All unearned income above $2,700 is taxed at the parent's rate, regardless of the child's filing status or income level.
Ages 19 to 23 (full-time student): The kiddie tax still applies if the child is a full-time student and does not provide more than half of their own financial support. This means college students with custodial investment accounts may still be subject to the parent's rate.
Age 19+ (not a student) or age 24+: The kiddie tax no longer applies. All unearned income is taxed at the child's own rate.
Exceptions: The kiddie tax does not apply to married children filing jointly, children with no living parents, or children who provide more than half their own support.
Filing Options: Form 8615 vs Form 8814
Form 8615: Child's Return
File a separate tax return for the child. Attach Form 8615 to calculate the tax on unearned income above $2,700 at the parent's rate.
Pros: More accurate calculation. Child builds tax filing history.
Cons: More paperwork. Requires parent's tax information.
Form 8814: Parent's Return
Include the child's income on the parent's return. Available if the child's income is only from interest and dividends and totals less than $11,500.
Pros: Simpler. One return covers everything.
Cons: May result in slightly higher tax. Can increase parent's AGI, affecting other deductions.
Kiddie Tax by Account Type
| Account Type | Subject to Kiddie Tax? | Why |
|---|---|---|
| Custodial savings (UTMA/UGMA) | Yes | Interest is the child's unearned income |
| Custodial brokerage | Yes | Dividends + capital gains are unearned income |
| Joint savings | No | Account is in parent's name |
| 529 plan | No | Qualified withdrawals are tax-free |
| Custodial Roth IRA | No | Contributions from earned income; growth is tax-deferred |
Strategies to Minimize the Kiddie Tax
Keep custodial balances below the threshold
At 3.10% APY, keep the custodial savings balance under $43,500 to stay completely in the tax-free zone.
Use 529 plans for education savings
529 plan earnings are completely exempt from the kiddie tax. If the goal is college, a 529 is more tax-efficient than a custodial account.
Shift to parent-owned accounts
Future contributions can go into a joint savings account (parent-owned) to avoid generating unearned income in the child's name.
Consider a custodial Roth IRA
If the child has earned income (babysitting, lawn mowing, part-time job), contributions to a custodial Roth IRA grow tax-free and do not trigger the kiddie tax.
Invest in growth stocks (no dividends)
For custodial brokerage accounts, growth-oriented stocks that pay no dividends defer the tax until shares are sold. The child may be past the kiddie tax age by then.
Historical Kiddie Tax Thresholds
| Year | Tax-Free | Child's Rate | Parent's Rate Above |
|---|---|---|---|
| 2026 | $1,350 | $1,351-$2,700 | $2,700 |
| 2025 | $1,350 | $1,351-$2,700 | $2,700 |
| 2024 | $1,300 | $1,301-$2,600 | $2,600 |
| 2023 | $1,250 | $1,251-$2,500 | $2,500 |
| 2022 | $1,150 | $1,151-$2,300 | $2,300 |
| 2021 | $1,100 | $1,101-$2,200 | $2,200 |
| 2020 | $1,100 | $1,101-$2,200 | $2,200 |
Frequently Asked Questions
What is the kiddie tax?
The kiddie tax is a federal tax rule that taxes a child's unearned income (interest, dividends, capital gains) above certain thresholds at the parent's marginal tax rate rather than the child's typically lower rate. It was designed to prevent parents from shifting investment income to children to take advantage of lower tax brackets.
Does the kiddie tax apply to earned income from a job?
No. The kiddie tax only applies to unearned income such as interest, dividends, and capital gains. Earned income from a part-time job is taxed at the child's own rate regardless of amount. A child with a summer job earning $5,000 would pay their own tax rate on that income.
Does a 529 plan trigger the kiddie tax?
No. Qualified withdrawals from 529 plans are completely tax-free and do not count as unearned income. This is one of the key tax advantages of 529 plans over custodial accounts for education savings.
What if my child's unearned income is exactly $1,350?
If the child's total unearned income for the year is $1,350 or less, no tax is owed and no tax return needs to be filed for the child (assuming no earned income above the filing threshold). The entire amount is covered by the dependent's standard deduction.
Does the kiddie tax apply to joint savings accounts?
No. Joint savings accounts are owned by the parent. All interest earned on a joint account is reported on the parent's tax return, not the child's. The kiddie tax only applies to accounts in the child's name, such as custodial UTMA/UGMA accounts.
At what age does the kiddie tax stop applying?
The kiddie tax stops applying when the child turns 19, or age 24 if they are a full-time student who does not provide more than half of their own financial support. After that age, all unearned income is taxed at the child's own rate.