Does the Kiddie Tax Reach Your Child's Account?

The kiddie tax rule can apply to a child under nineteen at year end, or a full-time student under twenty-four at year end whose earned income does not cover more than half of their own support, provided at least one parent is alive at year end. It is not limited to minors in the everyday sense — a full-time college student in their early twenties with investment income can still be covered, which surprises many families expecting the rule to stop at eighteen.

A child's unearned income — interest, dividends, capital gains, and similar investment-type income, not wages from a job — above a threshold set annually by the IRS is taxed at the parent's marginal tax rate rather than the generally lower rates a child's own income would otherwise receive. The mechanism exists specifically to stop parents from shifting investment assets into a child's name purely to have the income taxed at the child's lower bracket. The specific dollar threshold changes every year with inflation adjustments, so no fixed number is asserted here — check the current-year threshold in IRS Form 8615 instructions or Publication 929.

The kiddie tax reaches only unearned, investment-type income. Wages a child earns from an actual job — a summer internship, a part-time role, self-employment income from real work performed — are taxed under the normal individual rules that apply to the child's own return, entirely separate from this mechanism. Confusing the two is a common source of unnecessary worry for families whose teenager simply has a paycheck.