Chapter Four · The Tax Angle
Kiddie tax rules for 2026
Updated 27 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 stays well below the threshold. But understanding the rules matters for families with custodial investment accounts or larger balances.
2026 thresholds
Three tiers, one number to remember: $2,700
First $1,350
Tax-Free
covered by dependent's standard deduction
Next $1,350
Child's Rate
typically 10% federal
Above $2,700
Parent's Rate
parent's marginal rate applies
Where it actually bites
Balance needed to hit each threshold by APY
For a pure savings account (interest only, no dividends), here is the approximate balance needed to reach each kiddie-tax threshold at common APY rates:
| APY | $1,350 reached at | $2,700 reached at | Example account |
|---|---|---|---|
| 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 needs roughly $43,500 in the account before the first $1,350 of interest is earned. Very few children have balances that high. The kiddie tax is far more relevant for custodial brokerage accounts where dividends and capital gains generate income at lower balances.
Who is in scope
Age cutoffs and the student exception
- Under age 19: all unearned income above $2,700 is taxed at the parent's rate.
- Ages 19 to 23, full-time student: the kiddie tax still applies if the child does not provide more than half of their own financial support. 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 interest and dividends and totals less than $11,500.
Pros: simpler, one return covers everything.
Cons: may produce slightly higher tax, can increase parent's AGI affecting other deductions.
By account type
Which accounts trigger the kiddie tax
| Account type | Subject? | Why |
|---|---|---|
| Custodial savings (UTMA / UGMA) | Yes | Interest is the child's unearned income |
| Custodial brokerage | Yes | Dividends and capital gains are unearned income |
| Joint savings | No | Account is in the parent's name |
| 529 plan | No | Qualified withdrawals are tax-free |
| Custodial Roth IRA | No | Contributions from earned income; growth tax-deferred |
Strategy
Five ways to keep the kiddie tax at zero
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 future contributions to parent-owned accounts
New money 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.
Choose growth stocks over dividends
For custodial brokerage accounts, growth-oriented stocks that pay no dividends defer tax until shares are sold. The child may be past the kiddie-tax age by then.
For reference
Historical thresholds 2021 to 2026
| Year | Tax-free | Child's rate band | 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+ |
Postbag
Tax questions parents ask most
What is the kiddie tax?
The kiddie tax is a federal rule that taxes a child's unearned income (interest, dividends, capital gains) above certain thresholds at the parent's marginal 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 is reported on the parent's tax return. 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 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.