Not Child’s Play: How the “Kiddie Tax” Works

By Ian Berger, JD
IRA Analyst

With contributions to Trump accounts having gone live on July 4, 2026, there has been lots of discussion recently about the “kiddie tax.” That’s because, once a child reaches January 1 of the year they turn age 18, they will be able to withdraw or do a Roth conversion of accumulated Trump account funds. And, at least part of that withdrawal or conversion will likely be taxable and subject to the kiddie tax.

But what exactly is the kiddie tax? It’s a rule that requires that some of a child’s “unearned income” be taxed at the parent’s marginal tax rate – not at the child’s tax rate. The kiddie tax was intended to prevent parents from shifting their investment assets into their children’s names in order to have those assets taxed at the child’s lower tax rate.

What is “unearned income?” It’s basically any taxable income that is not earned by the child. Wages paid to a child for summer or part-time work are considered “earned income” and not subject to the kiddie tax (i.e., taxed at the child’s own rate). On the other hand, taxable IRA and retirement plan distributions (including Trump account withdrawals or conversions) count as unearned income. Unearned income also includes the following:

• Interest income
• Dividends
• Capital gains
• Income produced by gifts, including UTMA/UGMA custodial accounts
• Certain taxable scholarship and fellowship grants

Only unearned income in a calendar year above a certain dollar threshold (indexed based on inflation) is subject to the kiddie tax. For 2026, that threshold is $2,700. The first $1,350 is tax-free to the child, and the next $1,350 is taxed at the child’s rate.

If the child’s unearned income exceeds $2,700 (for 2026), the kiddie tax will apply for the year if:

• The child is age 17 or younger at year end;
• The child is age 18 at year end and not financially independent (that is, their earned income for the year did not provide more than 50% of their total living expenses); or
• The child is between ages 19 and 23 and a full-time student at year end, and not financially independent under the same 50% test.

Note that the kiddie tax will never apply for a year if the child isn’t required to file a federal income tax return for that year or if neither of the child’s parents is alive at year end.

So, a child who wants to withdraw Trump account funds or convert those funds to a Roth IRA may want to delay those transactions until the kiddie tax no longer applies (in many cases, that will be the age-24 year).

If the kiddie tax does apply, the child will usually file their own tax return and attach IRS Form 8615. However, if certain conditions are met, the parents may report the child’s unearned income and pay the kiddie tax on their own return using Form 8814.

Check with your financial advisor or tax pro for more details about the kiddie tax.

If you have technical questions you would like to have answered, be sure to submit them to [email protected], to be answered on an upcoming Slott Report Mailbag, published every Thursday.