Understand the Kiddie tax | Fidelity (2024)

Table of Contents
Key takeaways Does my child need to file their own tax return? What tax rate will my child pay? Can my child complete their own tax return? How much can the bill be? How can my child manage their assets for tax efficiency? Bottom line Start a conversation More to explore Tips on taxes Consider a Youth Account Looking for more ideas and insights? Thanks for subscribing! We're on our way, but not quite there yet Oh, hello again! Thanks for subscribing to Looking for more ideas and insights? You might like these too: Fidelity Viewpoints® Decode Crypto Fidelity Smart Money℠ Active Investor Insights from Fidelity Wealth Management ℠ Women Talk Money Educational Webinars and Events FAQs

If you got a tax form for a minor, you may need to help them file a return.

Fidelity Viewpoints

Understand the Kiddie tax | Fidelity (1)

Key takeaways

  • If you have a child with earned income or unearned income above certain thresholds, you may need to help them file a tax return.
  • The kiddie tax applies to unearned income, and amounts over $2,600 are taxed at the parents' marginal tax rate.
  • If this process seems complicated, you might consider consulting with a tax advisor or financial professional.

If you've got kids who aren't old enough to vote yet, that doesn't mean they are exempt from paying taxes. In fact, no matter how much they make from jobs or earnings from investments, the IRS wants to know about it. Depending on the amounts involved, they may even end up owing the IRS an amount based partially on what the parents earn.

Welcome to the complicated world of the kiddie tax.

The kiddie tax technically pertains to only the unearned portion of your child's income—from investments and savings. But if your child has any sort of earned income from a job, receiving either an official W-2 wage statement from an employer, a 1099 for freelance work, or just cash, you might have questions about their tax liability as well. Here are some answers to the most common concerns parents have.

Does my child need to file their own tax return?

The answer is generally yes if your child had unearned income of more than $1,300 or earned income over $14,600 (for the 2024 tax year). Those may sound like big numbers for mowing lawns or racking up interest on a few hundred dollars in a savings account, but your child could have a more lucrative job or make significant money from their social media channel(s). "The 2 most common scenarios we see are a child who had an internship during college and is still a dependent, or a child who has an invested custodial account with a substantial balance that will throw off income," says Chris Williams, a principal at the accounting firm EY.

Understand the Kiddie tax | Fidelity (2)

Sign up for Fidelity Viewpoints weekly email for our latest insights.


Subscribe now

What tax rate will my child pay?

The IRS sets specific limits on the type of income and the tax rates. Earned income will be taxed at the child's rate above their applicable standard deduction, which is equal to their earned income plus $450 (or $1,300, whichever is greater), up to a maximum of $14,600 in 2024. But investment income is a more complicated formula. Unearned income from interest, dividends, and capital gains are taxed in tiers defined by the IRS.

  • For a child with no earned income, the amount of unearned income up to $1,300 is not taxed in 2024.
  • The next $1,300 is taxed at the child's rate.
  • Any amount above $2,600 is taxed at the parents' rate.

These rules cover children under the age of 18, and also those up to the age of 24 who are full-time students.

Can my child complete their own tax return?

Given how hard most adults find it to file taxes, it's unlikely your industrious babysitting 12-year-old is going to be able to handle the forms on their own. An older teen might be able to follow the prompts of an online tax preparation program but still will likely require adult supervision. Williams suggests making them part of the process when you decide it's age-appropriate, even if you do it for them. "I do my teenage son's with commercial software, but I make him sit there while I do it, and I'll do the same with my daughter next year when she's old enough to have earnings," says Williams.

How much can the bill be?

If your child has a significant investment portfolio in a custodial account (like an UGMA or UTMA in the child's name, or a child-owned brokerage account like Fidelity's Youth Account) or a trust, the amounts can add up. "If you have trust income such as interest and dividends flowing through to a child that could very much impact their tax rate," says Williams.

An investment account above, say, $20,000 might generate enough income to tip the child's rate on unearned income over into the parent's tax rate, and this is especially true if the account is invested in mutual funds that make taxable distributions.

How can my child manage their assets for tax efficiency?

If your child has earned income, you can invest that income (up to $7,000 per year) in a Roth IRA for kids. The same rules apply to a Roth IRA for this age group as for adults. Contributions can always be withdrawn tax- and penalty-free. Qualified distributions of earnings are tax-free, assuming conditions are met.1 An added bonus: Assets in retirement accounts do not generally count as assets for college financial aid calculations.

You may also want to consider using a 529 savings account for educational savings instead of, or in addition to, a custodial account. While money is in the 529 account, no taxes will be due on investment earnings. When you take money out for qualified education expenses, withdrawals are federal income tax-free. You may also get a state tax deduction for your contributions, and the account will be counted as a parental asset (rather than a student asset) which can be beneficial when determining financial aid for college.

Bottom line

Your child's tax situation can be more complicated than you imagine, so consider consulting a tax advisor or financial professional to figure out your responsibilities and the best strategies to help address the kiddie tax.

Start a conversation

Already working 1-on-1 with us?
Schedule an appointmentLog In Required

Learn more

More to explore

Tips on taxes

Ideas to help reduce taxes on income, investments, and savings.

Consider a Youth Account

Help your teen learn to spend, save & invest in our secure app.

See Also
How does the IRS find my bank account and wages to send a levy? -

Timely news and insights from our pros on markets, investing, and personal finance.

Looking for more ideas and insights?

We'll deliver them right to your inbox.

Manage subscriptions

Thanks for subscribing!

Check out your Favorites page, where you can:

  • Tell us the topics you want to learn more about
  • View content you've saved for later
  • Subscribe to our newsletters
Go to Favorites

We're on our way, but not quite there yet

Good news, you're on the early-access list.
But we're not available in your state just yet. As soon as we are, we'll let you know. In the meantime, boost your crypto brainpower in our Learning Center.

Manage subscriptions

Oh, hello again!

Good news, you’re already on the early-access list. Keep an eye on your email for your invitation to Fidelity Crypto.

Manage subscriptions

All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing. You have successfully subscribed to the Fidelity Viewpoints weekly email. You should begin receiving the email in 7–10 business days. We were unable to process your request. Please Click Here to go to Viewpoints signup page.
All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing Nice work! Need to edit for crypto. We'll be in touch soon. In the meantime, visit Need to edit for crypto to stay up to date. We're unable to complete your request at this time due to a system error. Please try again after a few minutes.
All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing. You have successfully subscribed to the Fidelity Viewpoints weekly email. You should begin receiving the email in 7–10 business days. We were unable to process your request. Please Click Here to go to Viewpoints signup page.
All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing. You will begin receiving the Fidelity Viewpoints Active Investor newsletter. We were unable to process your request. Please visit www.fidelity.com/viewpoints.
All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing. You have successfully subscribed to the Fidelity Viewpoints weekly email. You should begin receiving the email in 7–10 business days. We were unable to process your request. Please Click Here to go to Viewpoints signup page.
All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing Nice work! Get ready to unleash your inner investor. We'll be in touch soon. In the meantime, visit Women Talk Money to stay up to date. We're unable to complete your request at this time due to a system error. Please try again after a few minutes.
All fields are required. First name

Enter your first name. Enter your first name. First name must be no more than 30 characters. First name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Last name

Please enter a valid last name. e.g. Doe. Enter your last name. Last name must be no more than 30 characters. Last name must be at least 2 characters. Sorry, we can't update your subscriptions right now. Please try again later.

Email address

Enter a valid email address. e.g. name@fidelity.com. Enter your email address. Enter a valid email address (like name@fidelity.com). Email address can not exceed 100 characters. Please enter a valid email address. e.g. name@fidelity.com.

Subscribe Subscribe
Thank you for subscribing Nice work! Get ready to unleash your inner investor. We'll be in touch soon. In the meantime, visit Women Talk Money to stay up to date. We're unable to complete your request at this time due to a system error. Please try again after a few minutes.

Thanks for subscribing to

Looking for more ideas and insights?
You might like these too:

Looking for more ideas and insights? You might like these too:

Fidelity Viewpoints®

Timely news and insights from our pros on markets, investing, and personal finance.

Decode Crypto

Clarity on crypto every month. Build your knowledge with education for all levels.

Fidelity Smart Money℠

What the news means for your money, plus tips to help you spend, save, and invest.

Active Investor

Our most advanced investment insights, strategies, and tools.

Insights from Fidelity Wealth Management ℠

Timely news, events, and wealth strategies from top Fidelity thought leaders.

Women Talk Money

Real talk and helpful tips about money, investing, and careers.

Educational Webinars and Events

Free financial education from Fidelity and other leading industry professionals.

Fidelity Viewpoints® Timely news and insights from our pros on markets, investing, and personal finance. Decode Crypto Clarity on crypto every month. Build your knowledge with education for all levels. Fidelity Smart Money℠ What the news means for your money, plus tips to help you spend, save, and invest. Active Investor Our most advanced investment insights, strategies, and tools. Insights from Fidelity Wealth Management ℠ Timely news, events, and wealth strategies from top Fidelity thought leaders. Women Talk Money Real talk and helpful tips about money, investing, and careers. Educational Webinars and Events Free financial education from Fidelity and other leading industry professionals.

Done

Add subscriptions No, thanks.

Understand the Kiddie tax | Fidelity (2024)

FAQs

Understand the Kiddie tax | Fidelity? ›

What tax rate will my child pay? The IRS sets specific limits on the type of income and the tax rates. Earned income will be taxed at the child's rate above their applicable standard deduction, which is equal to their earned income plus $450 (or $1,300, whichever is greater), up to a maximum of $14,600 in 2024.

Learn More Now ›
How do you understand the kiddie tax? ›

The Kiddie Tax is a part of income tax rules that apply to individuals under 18 years and full-time students under 24 years of age. If the child's unearned income, or investment income, is more than the Kiddie Tax threshold for the tax year, then the child must pay tax on any unearned income over the threshold.

Show Me More ›
What is the kiddie tax loophole? ›

The kiddie tax was established as part of the Tax Reform Act of 1986 to prevent parents from taking advantage of a tax loophole by shifting wealth into their children's name to avoid paying taxes at a higher rate. Before then, children's investments were taxed at the child's presumably lower rate.

View More ›
How do you estimate the kiddie tax? ›

Kiddie tax 2023

The first $1,250 of unearned income is tax-free. The next $1,250 of unearned income is taxed at 10%, the lowest tax bracket for income tax filers. Any unearned income above $2,500 will be taxed at their parent's marginal rate.

Get More Info ›
What is the kiddie tax explain quizlet? ›

Explain. 1. The kiddie tax is a tax using the parent's marginal tax rate on the child's unearned income in excess of $2,200.

Show Me More ›
What is the kiddie tax limit for 2024? ›

The first $1,250 of a child's unearned income is tax-free, and the next $1,250 is subject to the child's tax rate. Any additional earnings above $2,500 are taxed at the child's parents' marginal tax rate.

Read The Full Story ›
At what age does kiddie tax end? ›

The tax applies to dependent children under the age of 18 at the end of the tax year (or full-time students younger than 24) and works like this: The first $1,250 of unearned income is covered by the kiddie tax's standard deduction, so it isn't taxed. The next $1,250 is taxed at the child's marginal tax rate.

Read The Full Story ›
What is the maximum unearned income for kiddie tax? ›

Unearned income from interest, dividends, and capital gains are taxed in tiers defined by the IRS. For a child with no earned income, the amount of unearned income up to $1,300 is not taxed in 2024. The next $1,300 is taxed at the child's rate. Any amount above $2,600 is taxed at the parents' rate.

Discover More ›
What is unearned income for kiddie tax? ›

Unearned income for the purpose of the kiddie tax rules includes: All taxable interest. Ordinary and qualified dividends. Capital gains from sales.

Discover More ›
Can grandparents pay kiddie taxes? ›

Under the Kiddie Tax rules, a minor child's investment income above $1,100, some or all of which may come from assets in a custodial account, may be taxed at the parent's higher rates. This is true even if all the money to fund the custodial account came from a grandparent or someone else other than a parent.

Discover More Details ›

At what age do you not pay capital gains? ›

Since the tax break for over 55s selling property was dropped in 1997, there is no capital gains tax exemption for seniors. This means right now, the law doesn't allow for any exemptions based on your age. Whether you're 65 or 95, seniors must pay capital gains tax where it's due.

Continue Reading ›
Do parents have to report children's interest income? ›

Parents are not required to include their child's interest income on their own tax returns. However, if a child's investment income exceeds a certain threshold, the child may need to file a separate tax return to report this income.

Tell Me More ›
What qualifies as earned income for a child? ›

Key Takeaways. Tax requirements for dependent children are different from those of other taxpayers. A dependent child who has earned more than $13,850 of earned income (tax year 2023) typically needs to file a personal income tax form. Earned income includes wages, tips, salaries, and payment from self-employment.

Find Out More ›
Which of these cases would be subject to kiddie tax? ›

Understand the "kiddie tax" applies to the unearned income of children below the age of 18 or individuals between the ages of 19 and 24 who are full-time students and completely dependent.

Get More Info ›
Is kiddie tax gone? ›

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) repealed the changes made by the TCJA in the kiddie tax. The SECURE Act reinstated the kiddie tax as it was before 2018. This change is mandatory for 2020 and later.

Read More ›
Why is the child tax? ›

The federal government and 15 states offer child tax credits to enhance the economic security of families with children, particularly those in lower- to middle-income brackets. The amount of the tax credits is determined primarily by income level, marital status and number of dependent children.

Explore More ›
How is the amount of the alternative minimum tax determined? ›

How is the AMT calculated? The AMT is the excess of the tentative minimum tax over the regular tax. Thus, the AMT is owed only if the tentative minimum tax for the year is greater than the regular tax for that year. The tentative minimum tax is figured separately from the regular tax.

See More ›
How much money can a child make and still be claimed as a dependent? ›

If the dependent child is being claimed under the qualifying relative rules, the child's gross income must be less than $4,700 for the year in 2023. This threshold increases to $5,050 for 2024.

See Details ›
Do parents have to report children's income? ›

If you have a dependent who's earning income, good news — you can still claim them as a dependent so long as other dependent rules still apply. Your dependent's earned income doesn't go on your return. Filing tax returns for children is easy in that respect.

Learn More Now ›
Top Articles
Creating a Spending Plan
Projected Interest Rates in 5 Years: A Look at the Forecasts
V380 WiFi IP Camera 720P HD Two Way Audio Motion Detection Home Security Camera • EUR 21,05
Onkyo TXNR-5007-BS Service Manual
Xenoblade Chronicles 3 Gems: Materials, Effects And Gold Nopon Coins | Nintendo Insider
South Santee River to Edisto Beach, SC Marine Forecast
City Council Meeting Summary, June 24, 2024
Best 9-month CD Rates For July 2024 | Bankrate
Craigslist Blythewood Sc
Osrs Palm Tree Seed
Latest Posts
Financial Terms Glossary | Consumer Financial Protection Bureau
Fund of Funds (FOFs): Meaning, Types, Advantages, and Disadvantages
Article information

Author: Aracelis Kilback

Last Updated:

Views: 6273

Rating: 4.3 / 5 (44 voted)

Reviews: 91% of readers found this page helpful

Author information

Name: Aracelis Kilback

Birthday: 1994-11-22

Address: Apt. 895 30151 Green Plain, Lake Mariela, RI 98141

Phone: +5992291857476

Job: Legal Officer

Hobby: LARPing, role-playing games, Slacklining, Reading, Inline skating, Brazilian jiu-jitsu, Dance

Introduction: My name is Aracelis Kilback, I am a nice, gentle, agreeable, joyous, attractive, combative, gifted person who loves writing and wants to share my knowledge and understanding with you.