Kiddie Tax 2024: When Unearned Income Is Taxed at Parents

(USA) If your child earned money from savings or investments in 2024, the Kiddie Tax may apply. This rule can push part of a child’s unearned income—like interest, dividends, and capital gain distributions—onto the parent’s tax rates. In some cases, parents can choose to include the child’s interest and dividends on their own return by filing Form 8814. In other cases, the child must file a return with Form 8615, and the child’s net unearned income over $2,600 is taxed using the parent’s bracket if that rate is higher.

Quick Yes/No Eligibility Checks

Use these checks to see which path fits your family.

• Do you want to elect to report your child’s interest, dividends, and capital gain distributions on your return?
  • You can elect if the child meets all of the following:
  • Under age 19 at year-end, or under age 24 if a full‑time student.
  • The child’s only income was from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
  • The child’s gross income was less than $13,000 in 2024.
  • The child would otherwise be required to file because gross income is more than $1,300 for 2024.
  • The child doesn’t file a joint return.
  • No estimated tax payments were made under the child’s name and SSN, and no prior‑year overpayment was applied to this year’s estimated tax.
  • No federal income tax was withheld from the child’s income.
  • And the parent qualifies under one of these:
  • Filing a joint return with the other parent.
  • Married to each other but filing separately, and the electing parent has higher taxable income.
  • Unmarried, treated as unmarried, or separated/divorced, and the child lived with the parent for most of the year (custodial parent). If remarried, the custodial parent can elect on a joint return with the new spouse; if not filing jointly, the custodial parent must have higher taxable income than the new spouse.
  • If the answer is yes to all of the above, file Form 8814 with your return and the child does not file a separate return.
• If you can’t or don’t elect:
  • The child files a return with Form 8615 if they had more than $2,600 of unearned income in 2024 and meet the age/support tests described below. The child’s net unearned income over $2,600 is taxed using the parent’s brackets if the parent’s rate is higher.

Detailed Requirements for the Parental Election (Form 8814)

To make the election, both the child and the parent must qualify.

Child must meet all:
– Under age 19 at year-end, or under age 24 if a full-time student.
– Only income is from interest and dividends, including capital gain distributions and Alaska Permanent Fund dividends.
– Gross income under $13,000 in 2024.
– Required to file a return (gross income over $1,300), unless the parent makes this election.
– Doesn’t file a joint return.
– No estimated tax payments and no prior-year overpayment applied under the child’s SSN.
– No federal income tax withholding on the child’s income.

Parent must meet one:
– Filing jointly with the other parent.
– Married to each other but filing separately, and the electing parent had higher taxable income.
– Unmarried/treated as unmarried/separated by decree, and the child lived with the electing parent for most of the year (custodial parent). If the custodial parent remarried, they can make the election on a joint return with the new spouse; if not joint, they must have higher taxable income than the new spouse.

Note: If parents weren’t married but lived together with the child, only the parent with higher taxable income can make the election.

To file, attach a separate Form 8814 for each qualifying child to the parent’s return by the due date, including extensions. If you elect, the child does not file a return.

When You Cannot Make the Election

You cannot use Form 8814 if any of these are true:
– The child had any earned income (like wages) or other income beyond interest, dividends, and capital gain distributions.
– The child’s gross income was $13,000 or more.
– The child had estimated tax payments or a prior-year overpayment applied under their SSN.
– Federal income tax was withheld from the child’s income.
– The child plans to or does file a joint return.
– The parent doesn’t meet the relationship and income rules above.

If you can’t elect, move to the no‑election route with Form 8615.

Filing Without the Election (Form 8615)

When parents can’t or don’t elect, the child files a return with Form 8615 if all apply:
– The child had more than $2,600 of unearned income in 2024.
– The child must file a return (gross income over $1,300) unless the parent makes the Form 8814 election.
– Age/support tests (any one of the following):
– Under age 18 at year-end; or
– Age 18 and didn’t have earned income that was more than half of their support; or
– Full-time student, at least age 19 and under age 24 at year-end, and didn’t have earned income that was more than half of their support.
– At least one parent was alive at year-end.
– The child doesn’t file a joint return.

For this form, “unearned income” means all taxable income other than earned income. It includes:
– Taxable interest, ordinary dividends, and capital gains (including capital gain distributions)
– Rents and royalties
– Taxable Social Security benefits
– Pension and annuity income
– Taxable scholarship and fellowship grants not reported on a Form W-2
– Unemployment compensation
– Alimony
– Income (other than earned income) received as a trust beneficiary

These rules cover a legally adopted child and a stepchild. They apply whether or not the child is claimed as a dependent. If the parent makes the election with Form 8814, the child does not file a return or Form 8615.

Practical Examples to Test Eligibility

• Example 1: Your 17‑year‑old earned $3,400 from a savings account and mutual fund dividends. No tax was withheld. No estimated tax was paid. Their only income is interest and dividends. You file jointly.
  • Outcome: You may elect with Form 8814 because the child’s income is under $13,000, over $1,300, and the income types fit.
• Example 2: Your 20‑year‑old full‑time student had $5,000 in interest and a $2,000 part‑time job (earned income).
  • Outcome: You cannot elect Form 8814 because the child had earned income; evaluate Form 8615 if unearned income exceeds $2,600.
• Example 3: Your 18‑year‑old had $4,000 in capital gain distributions, and you made an estimated tax payment under the child’s SSN.
  • Outcome: You cannot use the election due to the estimated payment; the child may need to file with Form 8615.

How to Improve Your Chances of Qualifying for the Election

If your goal is to use Form 8814, consider these compliance steps (only if they fit your real situation):
– Keep the child’s income limited to interest, dividends, and capital gain distributions for the year.
– Avoid federal income tax withholding on the child’s investment accounts when appropriate.
– Don’t make estimated payments or apply prior-year overpayments to the child if you intend to elect.
– Keep the child’s total gross income below $13,000, and above $1,300 if you want the election to replace the child’s own filing.
– Make sure the child doesn’t file a joint return.
– Confirm which parent has higher taxable income when rules require that parent to elect.

Filing Steps and Deadlines

• If making the election:
  1. Complete a separate Form 8814 for each child.
  2. Attach the form(s) to the parent’s federal return.
  3. File by the normal due date for the parent’s return, including extensions.
  4. Remember: If you elect, the child does not file a return.
• If not making the election:
  1. The child files a return and attaches Form 8615.
  2. The child’s net unearned income over $2,600 is taxed using the parent’s brackets if the parent’s rate is higher.

Key Clarifications for Complex Households

• Parents living together but not married: Only the parent with the higher taxable income can make the election.
• Separated or divorced parents: The custodial parent (child lived with this parent most of the year) can qualify to elect, subject to income rules and remarriage details noted above.
• Remarried custodial parent: Can elect on a joint return with the new spouse; if filing separately, the custodial parent must have higher taxable income than the new spouse to qualify.

Why the Kiddie Tax Exists

The Kiddie Tax has been in place since the 1980s to stop families from shifting portfolio income to children to lower overall taxes. Today, it remains a guardrail when children have meaningful unearned income from investments.

According to analysis by VisaVerge.com, families often discover the rule after a child receives a large capital gain distribution, a sizable savings bond redemption, or a year of high dividends—exactly the moments when careful filing choices matter.

Key takeaway: Act early each tax year to confirm income types, withholding settings, and whether any estimated payments have been made under the child’s SSN. That early check can make the choice between Form 8814 and Form 8615 clear and help you file correctly the first time.

Official Guidance and Where to Learn More

For detailed federal rules and worksheets, see IRS guidance in IRS Publication 929, Tax Rules for Children and Dependents, available at the IRS website: IRS Publication 929.

Bottom line:
– If eligible and it fits your return, you can simplify by reporting the child’s interest, dividends, and capital gain distributions on your return with Form 8814.
– If you can’t or don’t elect, the child files with Form 8615, and any net unearned income over $2,600 is taxed using the parent’s bracket when that rate is higher.