If you’re a college student who’s been growing an investment portfolio, or the parent of a budding investor, the Kiddie Tax is an important concept to understand.
Under the Kiddie Tax, a dependent’s unearned income can be taxed at the parent’s higher marginal tax rate. The result can be some surprisingly high tax bills come April.
Because of the Kiddie Tax, some college investors may want to consider filing their own separate tax returns -- even if they don't work a standard job. Even if you don't think of yourself a "kid," here’s what you need to know about the Kiddie Tax rate.
For reference, the limitations in 2025 and 2026 are the same, similar to the gift tax.
What Is The Kiddie Tax In 2025 and 2026?
The Kiddie Tax is officially called the Tax On A Child's Investment And Other Unearned Income. It is the tax that a minor has to pay on unearned income including investment income or other types of income.
Prior to 1986, the year the Kiddie Tax was introduced, parents could shelter their investment income from higher tax rates by shifting assets into their minor children's names. The Kiddie Tax is designed to stop parents from giving large gifts to their children, only to have their children realize gains at a much lower tax rate.
Under the Kiddie Tax rule in 2025 and 2026, the first $1,350 of a child’s unearned income qualifies for the standard deduction. The next $1,350 is taxed at the child’s income tax rate. A child (or young adult’s) unearned income beyond $2,700 is taxed at the parent’s normal tax bracket.
Kiddie Tax Brackets
In 2025 and 2026, the first $1,350 of a child’s unearned income qualifies for the standard deduction. The next $1,350 is taxed at the child’s income tax rate. A child (or young adult’s) unearned income beyond $2,700 is taxed at the parent’s normal tax bracket.
This is up from $1,300 and $1,300 for a total of $2,600 in 2024.
What Counts As Unearned Income?
The Kiddie Tax rule only applies to unearned income. Income from a W-2 job, freelancing, or running a business is earned income. Normal income tax rules apply to that type of income.
As a dependent your standard tax deduction is the lesser of $1,350 or your earned income plus $400. If you earned $7,200 from part time work, your standard deduction will be $7,600. That means your tax rate on earned income will be 0%.
Unearned income includes interest, dividends, capital gains, rental income, taxable scholarships, gifts and more. See the full list from the IRS.
Note: Distributions from a 529 plan do not qualify as unearned income for the kiddie tax (because gains in these accounts grow tax-free). However, income from other custodial accounts (such as UTMA or UGMA accounts) does count.
Can This Tax Law Lead to Bracket Climbing?
There was a period of time from 2018-2019 where dependents subject to Kiddie Tax rules could have been taxed at rates higher than their parent's marginal tax rate.
This so-called “Bracket Climbing” was the result of the tax reform law in Tax Cuts and Jobs Act of 2017. However, the SECURE Act of 2019 overturned the bracket climbing rules and restored the Kiddie Tax rules to rules similar to the 1986 Tax reform.
Related: Effective Tax Rates -- How Much You Really Pay In Taxes
Who Does The Kiddie Tax Apply To?
A dependent is anyone who isn’t required to file their own tax return. The Kiddie Tax rule applies to the following types of dependents:
Under the Kiddie Tax rule, unearned income less than $2,700 will be taxed at the child's tax rate. But income from $2,700 to $13,500 is taxed at the parent’s rate. Once dependent have unearned income that exceeds $13,500, they are required to file their own separate return.
How Can This Tax Law Impact College Investors?
If you’re currently a student looking to make money through investing, you may be in for a surprise come tax time. But the rate you’ll pay on income beyond $2,700 is your parent's marginal tax rate, not your own marginal tax rate if you don't file your own return.
For ordinary unearned income (such as rental income), the marginal tax rate ranges from 10% to 37%. And the marginal tax rate on qualified dividends and long term capital gains ranges from 0% to 20%.
If you’re a higher earning student, you and your parents may pay less taxes overall if you file your own tax return. To file your own tax return you must earn at least enough money to provide half your support and claim yourself on your own tax return.
How Can I File The Kiddie tax?
If you made less than $2,700 in “unearned” income, your parents will likely want to continue to claim you as a dependent. Information about a dependent’s unearned income is filed through Federal Form 8615. All the major tax filing software programs support this form.
Having unearned income beyond $2,700 per year is pretty amazing for young investors. If you're in this situation, filing your own return could save you some money in taxes. And if you made more than $13,500 in unearned income, you'll be required to do file a separate return.
But for some dependents, other factors could still make it worth it to have their parents claim them as dependents and pay the Kiddie Tax using Form 8615. Parents with dependents who made more than $2,700 in unearned income, but don't qualify to file their own tax returns, will also need to file Form 8615.
If you're not sure which option would be best for your situation, your tax software can help you minimize the taxes you pay on your unearned income. Check out our full breakdown of the best tax software for 2026.
Editor: Clint Proctor
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.