Who Is Subject to the Kiddie Tax:
Age Criteria: Applies to children under 18, and to full-time students between 19 and 23 who do not have earned income exceeding half of their support. irs.gov
Dependency Status: The child must be claimed as a dependent on a parent's tax return.
Unearned Income Thresholds:
Standard Deduction: For 2024, the first $1,300 of unearned income is not taxed.
Child's Tax Rate: The next $1,300 is taxed at the child's rate.
Parent's Tax Rate: Unearned income exceeding $2,600 is taxed at the parent's marginal tax rate. fidelity.com
Types of Unearned Income:
Includes interest, dividends, capital gains, and other investment income.
Filing Requirements:
Form 8615: Children with unearned income over $2,600 must file Form 8615 to calculate the tax owed. irs.gov
Understanding the Kiddie Tax ensures compliance with tax regulations and helps families plan effectively for their children's investment income.