What Is the Kiddie Tax?

The "kiddie tax" requires certain children's unearned income (like dividends and capital gains) to be taxed at their parents' tax rate rather than the child's lower rate. It applies to children under age 19 (or under 24 if full-time students) whose unearned income exceeds a threshold ($2,500 for 2024). The first chunk of unearned income is tax-free, the next is taxed at the child's rate, and anything above the threshold is taxed at the parent's rate. This rule was created to prevent parents from shifting investment income to children to take advantage of lower rates. It's calculated on Form 8615.