What is the Kiddie Tax?

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Multiple Choice

What is the Kiddie Tax?

Kiddie Tax is the rule that handles how a dependent child’s unearned income is taxed. When a qualifying child has unearned income—such as interest, dividends, or capital gains—and that income exceeds a certain threshold, the excess is taxed at the parents’ marginal tax rate. The portion up to the threshold is taxed at the child’s own rate. This structure is designed to prevent shifting investment income to children to take advantage of their typically lower tax brackets. It applies to dependents under 19, or under 24 if a full-time student, and it targets unearned income, not earned wages from a job.

Kiddie Tax is the rule that handles how a dependent child’s unearned income is taxed. When a qualifying child has unearned income—such as interest, dividends, or capital gains—and that income exceeds a certain threshold, the excess is taxed at the parents’ marginal tax rate. The portion up to the threshold is taxed at the child’s own rate. This structure is designed to prevent shifting investment income to children to take advantage of their typically lower tax brackets. It applies to dependents under 19, or under 24 if a full-time student, and it targets unearned income, not earned wages from a job.

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