kiddie tax

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 $400 (or $1,250, whichever is greater), up to a maximum of $13,850 in 2023. 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 $1,250 is not taxed in 2023.
• The next $1,250 is taxed at the child's rate.
• Any amount above $2,500 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.