It is correct. Capital gains that are taxed at 0% are still considered taxable income. The capital gains are correctly included in the taxable income amount.
The Kiddie Tax only applies to unearned income in excess of $2,600.
- $0 - $1,300 isn't taxed.
- $1,301 - $2,600 is taxed at the child’s tax rate.
- Over $2,600 is taxed at the parents’ marginal tax rate. Their marginal tax rate is the highest tax rate they'll pay on taxable income. It’s based on the federal income tax bracket they're in, which depends on their taxable income and filing status.
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