The kiddie tax (or “Tax for Certain Children Who Have Unearned Income” as the IRS calls it) is a set of tax laws which force the unearned income of a minor over a small amount to be taxed at the higher tax rate of the parents. The kiddie tax was first added to the tax code in 1986 to stop parents from shifting some of their investment income to their children’s tax return. In practice, the kiddie tax often punishes entrepreneurial college students who have both earned and unearned income.
A single filer under age 18 cannot avoid the kiddie tax. Even an independent minor with no parental contact would still be subject to the kiddie tax. For single filers between the ages of 19 and 24, the young adult must have “earned income that was more than half of their support” to avoid the tax. Young adults over age 25 are finally liberated from this requirement.
For 2026 and assuming the child has no earned income, the kiddie tax limits allows $1,350 to be received without being taxed and the next $1,350 to be taxed at the child’s rate. After that, any unearned income in excess of $2,700 is taxed at the parent’s top marginal rate.
These numbers may seem small but $2,700 of unearned income can actually come from a large amount of savings.
Assuming an all-stock balanced portfolio has a dividend yield of about 2.2% and the investments might grow at 6.5% over inflation, we can work backwards to figure out how much a child could have at each age without their dividend yield going over the kiddie tax limit.
By age, what account balance is likely to stay below kiddie tax limits?
If you already have some savings for your child, the question each year is by how much can you top off the account. This table tells you that.
Here’s an example using the 2026 numbers:
Imagining that you have a 7-year-old son with $20,000 saved, you would look up on this table and see that he could have $42,072, so you can contribute up to $22,072 this year.
On the flip side, if you have a sixteen-year-old daughter with $80,000 saved, you would notice this is over $74,156 and might consider realizing some gains under the kiddie limits so you can reinvest in a strategy with an overall dividend yield less than 2.2%.
For tax year 2026, that table looks like this:
| Current Age | Assets | Income | Current Age | Assets | Income | |
|---|---|---|---|---|---|---|
| 0 | $27,074 | $596 | 13 | $61,390 | $1,351 | |
| 1 | $28,834 | $634 | 14 | $65,380 | $1,438 | |
| 2 | $30,708 | $676 | 15 | $69,630 | $1,532 | |
| 3 | $32,704 | $719 | 16 | $74,156 | $1,631 | |
| 4 | $34,830 | $766 | 17 | $78,976 | $1,737 | |
| 5 | $37,094 | $816 | 18 | $84,109 | $1,850 | |
| 6 | $39,505 | $869 | 19 | $89,576 | $1,971 | |
| 7 | $42,072 | $926 | 20 | $95,399 | $2,099 | |
| 8 | $44,807 | $986 | 21 | $101,600 | $2,235 | |
| 9 | $47,720 | $1,050 | 22 | $108,204 | $2,380 | |
| 10 | $50,821 | $1,118 | 23 | $115,237 | $2,535 | |
| 11 | $54,125 | $1,191 | 24 | $122,727 | $2,700 | |
| 12 | $57,643 | $1,268 |
Assuming I begin with zero dollars saved, what amount can I contribute annually?
When you are just starting out, the other question is how much can I contribute each year. This table tells you that.
If you are new to the table, save both the annual contribution number and the age you started at. When you come back to an updated version of this table, look up the age your child was when you started annual contributions to find your inflation-adjusted contribution target. Do not look-up their current age.
For tax year 2026, that table looks like this:
| Starting Age | Annual Contribution | Starting Age | Annual Contribution | |
|---|---|---|---|---|
| 0 | $2,084 | 13 | $7,065 | |
| 1 | $2,258 | 14 | $7,984 | |
| 2 | $2,450 | 15 | $9,095 | |
| 3 | $2,662 | 16 | $10,461 | |
| 4 | $2,898 | 17 | $12,179 | |
| 5 | $3,161 | 18 | $14,400 | |
| 6 | $3,455 | 19 | $17,374 | |
| 7 | $3,787 | 20 | $21,555 | |
| 8 | $4,161 | 21 | $27,847 | |
| 9 | $4,587 | 22 | $38,362 | |
| 10 | $5,075 | 23 | $59,432 | |
| 11 | $5,638 | 24 | $122,727 | |
| 12 | $6,294 |
Other Considerations
Here are some additional tax savings ideas:
- Tax-sheltered accounts like Roth IRAs, Trump accounts, and 529 plans are not subjected to the kiddie tax rules, so you can maximize your savings there without concern for the kiddie tax.
- An average dividend yield for a diversified portfolio might be 2.2% but this can be adjusted by changing the asset allocation. If you’re getting close to kiddie tax limits, you can switch to a lower yield portfolio to avoid taxation.
- You may be able to realize some capital gains each year while the child is in the 0% capital gains rate, but you’ll want to keep the total of dividends, interest, and realized capital gains below the kiddie tax limit.
- Your first contributions to a child could be appreciated stock with unrealized gains less than the kiddie tax limit. This lets you sell the the stock in a lower tax rate.
- A child’s earned income is not subject to the kiddie tax. If they defer their earnings into their 401(k) plan and contribute to their Roth IRA, they may be able to spend down their taxable brokerage account reducing the threat of the kiddie tax while sheltering more assets from taxation.
Putting too little in the name of the child may not meet your family savings goals. Putting too much in the name of the child can trigger the kiddie tax. Hopefully this article helps you put just the right amount.
Photo used here under Unsplash Creative Commons Zero. Image has been cropped.
