The Kiddie Tax is the tax levied on the portion of your child's unearned income that exceeds $2,200. Children who only had earned income from a job or self-employment, don’t make enough money to be required to file, or are filing jointly with their spouses are exempt from the Kiddie Tax.
For tax year 2019, the Kiddie Tax applies if your child has unearned income (usually from investments) exceeding $2,200, is required to file a return, isn’t filing jointly, and was age:
- 17 or younger at the end of 2019;
- 18 at the end of 2019, but only if their earned income (excluding scholarships in the case of a full-time student) didn’t exceed half of their support costs in 2019; or
- 19–23 at the end of 2019, but only if they were full-time students and their earned income (excluding scholarships) didn’t exceed half of their support costs in 2019.
The Tax Cuts and Jobs Act (TCJA) made substantial changes to the Kiddie Tax in 2018 through 2025. Instead of using the parent’s highest marginal rate, the Kiddie Tax is now determined by the tax brackets and rates for trusts and estates. Here’s what those work out to:
- The first $2,600 (after the initial $2,200) is taxed at 10%
- The next $6,700 is taxed at 24%
- The next $3,450 is taxed at 35%
- Anything beyond that is taxed at 37%
Remember that the Kiddie Tax only applies to unearned income in excess of $2,200. Here’s a step-by-step illustration of how a child with $15,000 of unearned income in 2019 would be taxed under the new law:
- Regular tax rates apply to the first $2,200, which is exempt from the Kiddie Tax. The remaining $12,800 is subject to the Kiddie Tax.
- The first $2,600 is taxed at 10%, leaving $10,200 to roll up to a higher rate.
- $6,700 of the $10,200 is taxed at 24%, leaving $3,500.
- $3,450 of the $3,500 is taxed at 35%, leaving $50.
- The remaining $50 is taxed at 37%.