Do Minors Pay Taxes on Dividends? Understanding the Kiddie Tax and Parental Election

Minors, individuals under the age of 18, are generally subject to the same tax laws as adults. However, there are specific rules that apply to the taxation of unearned income, such as dividends, for children. Understanding these rules is crucial for parents and guardians to ensure proper tax compliance and minimize tax liability.

The Kiddie Tax

The “kiddie tax” is a provision in the tax code that imposes a tax on the unearned income of children under the age of 18. Unearned income includes dividends, interest, capital gains, and other passive income sources. The kiddie tax is designed to prevent parents from shifting investment income to their children to avoid paying higher taxes.

The kiddie tax applies if the child’s unearned income exceeds $2,500 for the tax year. The tax rate for unearned income over $2,500 is the child’s marginal tax rate, which is typically the same as the parent’s tax rate.

Parental Election

Parents may elect to report their child’s unearned income on their own tax return instead of having the child file a separate return. This election is available if the child meets the following criteria:

  • The child is under the age of 19 (or under age 24 if a full-time student).
  • The child’s gross income is less than $12,500.
  • The child’s income is solely from interest and dividends (including capital gain distributions).

By making this election, parents can avoid the kiddie tax and simplify the tax filing process.

Tax Implications for Minors

If a minor’s unearned income is subject to the kiddie tax, the child may be responsible for paying taxes on that income. The tax liability will depend on the child’s income and the applicable tax rates.

If the child’s unearned income is below $2,500, the child is not subject to the kiddie tax. However, the child may still be required to file a tax return if their total income exceeds the standard deduction.

Tax Implications for Parents

Parents who elect to report their child’s unearned income on their own tax return are responsible for paying any taxes due on that income. The child’s unearned income will be included in the parent’s taxable income and taxed at the parent’s marginal tax rate.

Understanding the kiddie tax and parental election is essential for parents and guardians to ensure proper tax compliance and minimize tax liability. By carefully considering the rules and making informed decisions, parents can optimize their tax situation and avoid unnecessary tax burdens.

Dividend Taxes: Everything Investors Need to Know


Do I need to report my child’s dividend income?

If your child’s only income is unearned and doesn’t exceed $1,250, it doesn’t need to be reported. If your child’s unearned income is between $1,250 and $13,850, they may need to file their own return, but in certain situations, this income can be included on your return.

Do minors have to pay taxes on stocks?

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.

Do I have to report my child’s 1099?

In most cases, no. If your dependent child made less than $1,250 in interest, dividends, and capital gains distributions combined, and that was their sole source of income, the child’s income doesn’t need to be reported on any tax return.

Do I have to file taxes if my parents claim me as a dependent?

In general, a dependent should file if their earned income exceeds the standard deduction for singles or if their investment income exceeds $1,250 for 2023 or $1,300 for 2024. You should file a return if you had taxes withheld from your pay in any amount; determine if you should file here.

Do minors have to pay taxes?

A minor who earns tips or makes more than $400 (tax year 2023) in self-employment income will typically have to pay Social Security or Medicare taxes, regardless of their total earnings. How do I know if my minor child has to file an income tax return?

Can I include my Child’s interest and dividend income on my tax return?

You may be able to elect to include your child’s interest and dividend income (including capital gain distributions) on your tax return. If you do, your child won’t have to file a return. You can make this election only if all the following conditions are met.

Do I have to pay taxes on my child’s investment income?

Either your child must file his/her own investment income taxes or you must report your child’s income on your own return if your child’s income totals more than $2,500 from these: Use Form 8615 to figure the tax on your child’s investment income.

Do minor children need to file taxes?

Whether or not minor children need to file an income tax return depends on many factors such as earned income from a job including self-employment, unearned income typically from investments, or the need to claim a refund. At what earned income does my child have to file taxes?

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