The Kiddie Tax — Taxes on a Child’s Unearned Income

 

When you file taxes, you might need to make an adjustment for your child’s income or private activity bonds. This is often called the kiddie tax. The kiddie tax rules apply to unearned income that belongs to a child. It means that if your child has unearned income more than $2,200, some of it will be taxed at estate and trust tax rates. 

The kiddie tax rules apply to any child who:

  • Has more than $2,200 of unearned income
  • Has at least one living parent
  • Doesn’t file a joint return
  • Is required to file a tax return
  • Is under age 18 at year’s end (or under age 24 at year’s end if a full-time student)

Unearned Income Tax Rules for Children and Dependents

You can report a child’s investment income on either your return or your child’s return. If your child got earned income or income from the sale of stock, you must file a separate return for your child. Report stock sales on Form 1099-B.

Due to the kiddie tax, you should consider filing a separate return for your child. The disadvantages of reporting your child’s income on your return include:

  • You might have to pay more tax. Adding income to your return could:
    • Limit your IRA deduction
    • Limit your student-loan interest deduction
    • Limit your tuition and fees deduction
    • Reduce the amount of some itemized deductions
  • Your adjusted gross income (AGI) might increase, which:
    • Could affect your eligibility for certain credits. These credits include:
      • American Opportunity Credit
      • Lifetime Learning Credit
      • Earned Income Credit (EIC)
      • Child and dependent care credit
    • Could lead you to pay the Alternative Minimum Tax (AMT) or increase the amount of AMT you owe
  • You can’t claim deductions on your return that your child would be eligible for if they had filed a separate return.

It also might be better to file a separate return for your child if your child:

When you report your child’s investment income on your return, file Form 8814 with your return. If your child files their own return and the kiddie tax applies, file Form 8615 with the child’s return.

To learn more about kiddie tax rules for children and dependents, see Publication 929: Tax Rules for Children and Dependents at www.irs.gov.

When can I include my child’s unearned income on my return?

There are a lot of things to consider about kiddie tax when deciding if your child’s income should go on their return or yours. This also impacts whether you’ll need to file Form 8814 or Form 8615. First, you might want to check if you even can include your child’s income on your return. 

You can include your child’s unearned income in your return if:

  • Your child’s age was either:
    • Under age 19 at the end of 2019
    • Under age 24, if they were a full-time student
  • Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
  • The child’s gross income was less than $11,000.
  • The child doesn’t file a joint return for 2019.
  • Under your child’s name and Social Security number (SSN), you didn’t:
    • Make an estimated tax payment for 2019 
    • Apply a 2018 overpayment to 2019 
  • No federal income tax was taken out of your child’s income under backup withholding rules.
  • You’re the parent who must use their return when applying the special tax rules for children under age 19.

That answers if you can include your child’s income. But should you? Here’s when you should report your child’s unearned income on your return:

  • If your child’s income is $1,050 or less, you don’t need to report the income on either your child’s return or your own return.
  • If your child received more than $1,050 in income, you can report it on your own return if all of these apply:
    • The income consists of interest, dividends, and capital gain distributions only.
    • The child’s gross income is less than $11,000.
    • At the end of 2019, your child was under age 18 (or age 24, if a full-time student).
    • Your child made no estimated tax payments and had no taxes withheld.

Related Topics

Related Resources

Taxes On Overpayment Of Unemployment Benefits

What are the implications on your taxes if you received too much in unemployment benefits and had to repay? Learn more from the tax experts at H&R Blo

Cost Basis

What is the cost basis of stock and other investments? Learn more about calculating the basis and get tax answers from H&R Block.

How To Report Patronage Dividends

How should you use form 1099-PATR to report a patronage dividend? Learn more from the tax experts at H&R Block.

Income Tax – Why Do We Pay Federal Income Tax

Learn about federal income tax and why citizens pay income tax. Get a brief introduction to federal income taxes and how H&R Block can help.