Kiddie Tax.
In plain English
The kiddie tax exists so families cannot shift large amounts of investment income to a child to get a lower tax rate. It applies only to unearned income (interest, dividends, capital gains), not to money a kid earns from a job. For 2026, per IRS Revenue Procedure 2025-32 Section 4.02, the first $1,350 of unearned income is offset by the child's standard deduction, the next $1,350 (income from $1,350 to $2,700 total) is taxed at the child's own marginal rate, and unearned income above $2,700 is taxed at the parents' marginal rate via Form 8615. This entry is not advice on any specific filing situation.
01Why it matters
Families who invest meaningful amounts in a child's name (UTMA, UGMA, custodial brokerage) hit the kiddie tax once the account's dividends, interest, and realized gains add up. The threshold is small enough that even a modest portfolio crosses it, and the parents' marginal rate is often higher than the child's, so the effective tax rate on those gains is the parents' rate, not the child's.
02The math, step by step
A child has $4,000 of dividends in a UTMA in 2026. The first $1,350 is offset by the standard deduction (effectively 0% federal). The next $1,350 (up to $2,700) is taxed at the child's own marginal rate. The remaining $1,300 above $2,700 is taxed at the parents' marginal rate using Form 8615.
03What this is NOT
The kiddie tax is not a tax on a kid's summer-job paycheck. Wages are earned income and are taxed at the child's normal rate, not the parents'. The kiddie tax only applies to unearned income (interest, dividends, capital gains).
04Receipts
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