Kiddie Tax Calculator
The kiddie tax rules under IRC Section 1(g) prevent parents from shifting investment income to children in lower tax brackets to reduce the family's overall tax burden. Under these rules, a dependent child's net unearned income above a threshold is taxed at the parent's marginal tax rate rather than the child's own lower rate. For 2025, the first $1,350 of unearned income is offset by the child's standard deduction, the next $1,350 is taxed at the child's own rate, and any unearned income above $2,700 is subject to the parent's rate. Unearned income includes interest, dividends, capital gains, rents, royalties, and similar investment income. Earned income (wages, self-employment income) is always taxed at the child's own rate and is not subject to these rules. The kiddie tax applies to children under age 18, and to full-time students ages 18 to 23 who do not earn more than half their own support. If multiple children in a family are subject to the kiddie tax, the parent's rate is applied separately to each child using the parent's return as the reference. This calculator computes the child's net unearned income, applies the 2025 thresholds, determines how much is taxed at the child's rate versus the parent's rate, and shows the total kiddie tax owed.
With unearned income of $4,500, earned income of $3,000, parent's rate of 24%, and child's rate of 10%, the child's total federal tax is --. Without kiddie tax, the child would owe --.
How the kiddie tax is calculated
The kiddie tax calculation follows a specific order. First, earned income is taxed at the child's own rate (it is never subject to the kiddie tax). Second, the first $1,350 of unearned income is tax-free (covered by the standard deduction). Third, the next $1,350 of unearned income (from $1,350 to $2,700) is taxed at the child's own rate. Finally, any unearned income above $2,700 is taxed at the parent's marginal rate. This layered approach is designed to benefit families with high-earning parents but lower-income children who have passive income.
standard deduction = 1,350 (2025)
taxable income = total income - standard deduction
tax-free unearned = min(unearned, 1,350)
at child rate = min(max(0, unearned - 1,350), 1,350)
at parent rate = max(0, unearned - 2,700)
child tax = at child rate x (child rate / 100)
parent tax = at parent rate x (parent rate / 100)
earned tax = earned income x (child rate / 100) [earned always at child rate]
Worked example
Unearned income $4,500, earned income $3,000, parent rate 24%, child rate 10%:
- Total income = 4,500 + 3,000 = $7,500
- Standard deduction = $1,350
- Taxable income = 7,500 - 1,350 = $6,150
- Tax-free unearned = min(4,500, 1,350) = $1,350
- Unearned at child rate = min(max(0, 4,500 - 1,350), 1,350) = min(3,150, 1,350) = $1,350
- Tax on that = 1,350 x 0.10 = $135
- Unearned at parent rate = max(0, 4,500 - 2,700) = $1,800
- Tax on that = 1,800 x 0.24 = $432
- Earned income is taxed at child rate: 3,000 x 0.10 = $300
- Total tax with kiddie tax = 135 + 432 + 300 = $867
- Without kiddie tax, all 6,150 would be taxed at 10%: 6,150 x 0.10 = $615
- Kiddie tax cost = 867 - 615 = $252 additional tax
Planning strategies and exceptions
The kiddie tax is a tax on success when parents are high earners but children have passive income. Several strategies can minimize the impact. First, direct income to accounts and investments in the child's name that grow without realizing capital gains each year (for example, growth stocks or index funds held long-term). Second, time the realization of gains to spread them across multiple years. Third, invest in tax-exempt bonds (municipal bonds) if appropriate for the family's situation.
Another option is to have the child work in the family business and earn wages, which are always taxed at the child's own rate and are not subject to the kiddie tax. The wages must be for genuine work performed and must be reasonable in amount, but this can be an effective way to shift income to a lower-tax family member.
Parents can also elect to include a child's unearned income directly on the parent's return (using Form 8814) if the income consists only of interest and dividends and is below the Form 8814 threshold. This simplifies filing, though it may increase the parent's tax if the parent's rate is very high. Children over age 23 (or age 24 for full-time students) are never subject to the kiddie tax rule, even if they live with their parents and the parents claim them as dependents.
Kiddie tax: frequently asked questions
What is the kiddie tax and who is subject to it?
The kiddie tax, under IRC Section 1(g), applies a special tax calculation to certain children's unearned income (interest, dividends, capital gains, rents, royalties). Children under age 18 are automatically subject to the kiddie tax. Children ages 18-23 who are full-time students are subject if their unearned income exceeds half their own support. In general, if the kiddie tax would apply, the child's unearned income above a certain threshold is taxed at the parent's marginal rate rather than the child's own rate.
What is the 2025 unearned income threshold for the kiddie tax?
For 2025, the threshold is $2,700. This means: the first $1,350 of unearned income is tax-free (standard deduction); the next $1,350 (from $1,350 to $2,700) is taxed at the child's own tax rate; any unearned income above $2,700 is taxed at the parent's marginal rate. These thresholds are adjusted annually for inflation by the IRS.
What counts as unearned income for kiddie tax purposes?
Unearned income includes interest, dividends, capital gains, rental income, royalties and taxable distributions from trusts or estates. It does NOT include wages from employment, scholarship income used for education, or qualified distributions from 529 plans. Earned income (wages from work) is always taxed at the child's own rate, regardless of the kiddie tax rules.
How is the tax calculated if kiddie tax applies?
The tax is calculated in layers. First, the first $1,350 of unearned income is tax-free (it is covered by the standard deduction). Next, the next $1,350 (from $1,350 to $2,700) is taxed at the child's own marginal tax rate. Finally, any unearned income above $2,700 is taxed at the parent's marginal rate. This is reported on the child's Form 1040 with Form 8615 attached.
Can parents elect to include a child's income on their own return?
Yes, parents can elect to include their child's unearned income directly on the parent's return using Form 8814, but only if the child's gross income is less than $12,500 (for 2025) and consists only of interest and dividends. This election simplifies filing and avoids the need to file a separate return for the child, but it may not be the best choice if the parent's tax rate is very high or if the child has other types of unearned income.
What is the interaction between earned and unearned income?
Earned income (wages) is always taxed at the child's rate. The kiddie tax only applies to unearned income. However, earned income does affect the standard deduction available: a child's standard deduction can be up to the greater of (1) $1,350 or (2) earned income plus $450, up to the full standard deduction. For example, a child with $5,000 in wages and $3,000 in dividends would have a standard deduction of $5,450, eliminating tax on the $5,000 wages and most of the dividends.
Official sources
- IRS Publication 929 (Rules for Children and Dependents): irs.gov/publications/p929.
- IRS Form 8615 (Tax for Certain Children Who Have Unearned Income): irs.gov/pub/irs-pdf/f8615.pdf.
- IRS Form 8814 (Parents' Election to Report Child's Interest and Dividends): irs.gov/pub/irs-pdf/f8814.pdf.
- IRS Rev. Proc. 2024-40 (2025 tax year thresholds): irs.gov/pub/irs-drop/rp-24-40.pdf.
Reviewed by the CalculatorHub team, edited by James Graham, 13 June 2026. See our methodology. General information, not financial or tax advice.