Kiddie Tax (Form 8615) for H-1B Dependents (2026)

The “kiddie tax” is a federal rule designed to prevent parents from shifting investment income to their children to take advantage of lower tax brackets. For H-1B families who open custodial investment accounts (UGMA/UTMA) or have children with unearned income from interest, dividends, or capital gains, the kiddie tax can result in a child's investment income being taxed at the parent's marginal rate — often 24% to 37% for H-1B households.

What Is the Kiddie Tax?

The kiddie tax, codified in IRC §1(g), applies to children under age 19 (or under age 24 if a full-time student) who have unearned income above a specified threshold. “Unearned income” includes interest, dividends, capital gains, rents, royalties, and other investment income — anything that is not compensation for personal services.

The rule works by taxing the child's unearned income above the threshold at the parent's marginal tax rate rather than the child's own (typically lower) rate. This eliminates the tax benefit of shifting investment assets to children.

The kiddie tax applies regardless of:

• Whether the parent or child controls the investment account
• Whether the investments were a gift from grandparents, relatives in India, or anyone else
• Whether the child files their own return or the parent includes the income on the parent's return
• The child's immigration status — it applies based on tax residency, not visa type

2026 Thresholds and Calculations

For tax year 2026, the kiddie tax thresholds (projected based on inflation adjustments) are:

The calculation under Form 8615 compares two amounts:

• The tax computed at the child's rate on all of the child's taxable income (earned + unearned)
• The tax computed at the parent's rate on the child's net unearned income (unearned income above $2,700)

The child pays the higher of the two amounts. In practice, for H-1B families in the 24%–35% brackets, any unearned income above $2,700 is taxed at the parent's rate, which is significantly higher than the 10% rate the child would otherwise pay.

When Does Kiddie Tax Apply to H-1B Dependents?

The kiddie tax applies when all of the following conditions are met:

• Age requirement. The child is under age 19 at the end of the tax year, or under age 24 if a full-time student. Once a child turns 19 (or 24 if a student), the kiddie tax no longer applies and the child's investment income is taxed at their own rate.
• Unearned income exceeds $2,700 (2026). The kiddie tax only matters when the child's unearned income exceeds the threshold. If your child earns $2,000 in interest and dividends, the kiddie tax does not change the result — the income is taxed at the child's rate regardless.
• At least one parent is alive. The kiddie tax references the parent's rate, so it requires at least one living parent at year-end.
• Child does not file a joint return. If the child files a joint return with a spouse, the kiddie tax does not apply.

Common scenarios where H-1B families trigger the kiddie tax:

• UGMA/UTMA custodial accounts. These are the most common trigger. H-1B families often open custodial brokerage accounts for children and invest in index funds or individual stocks. When the account generates dividends and capital gains above $2,700, the kiddie tax kicks in.
• Gifts from Indian relatives. Grandparents or other family members in India may transfer money that gets invested in accounts under the child's name. The investment returns are subject to the kiddie tax.
• 529 plan distributions used for non-education expenses. If 529 plan funds are withdrawn for non-qualified expenses, the earnings portion is taxable income to the beneficiary (child) and may trigger the kiddie tax.
• Savings bonds and bank interest. High-yield savings accounts or savings bonds in a child's name can accumulate enough interest to cross the threshold, especially in high interest rate environments.

Calculating the Tax: Form 8615 vs Form 8814

There are two ways to report a child's unearned income subject to the kiddie tax:

• Form 8615 (filed with child's return). The child files their own Form 1040 with Form 8615 attached. This is the standard method and is required when the child has earned income (wages, self-employment) in addition to unearned income, or when the unearned income exceeds $12,500.
• Form 8814 (elected on parent's return). If the child's income consists only of interest and dividends totaling less than $12,500, the parent can elect to include the child's income on the parent's own Form 1040 using Form 8814. This avoids filing a separate return for the child.

Form 8814 is simpler but has a disadvantage: the child's income added to the parent's return can push the parent into higher brackets, trigger the Net Investment Income Tax (3.8% surtax), and reduce eligibility for income-phased deductions and credits. For H-1B families already near NIIT thresholds ($200,000 single / $250,000 MFJ), using Form 8814 can be more expensive than filing a separate return for the child with Form 8615.

Investment Accounts for H-1B Children

H-1B families have several account types available for children, each with different kiddie tax implications:

• 529 Education Savings Plan. Earnings grow tax-free and withdrawals for qualified education expenses are tax-free. No kiddie tax applies to 529 earnings as long as funds are used for qualified expenses. This is the most tax-efficient vehicle for college savings and avoids the kiddie tax entirely.
• Roth IRA (for children with earned income). If your child has earned income (from a part-time job, babysitting, or legitimate self-employment), they can contribute to a Roth IRA up to the lesser of earned income or $7,500 (2026). Earnings grow tax-free. No kiddie tax applies to Roth IRA earnings.
• UGMA/UTMA custodial accounts. These accounts are simple to open and have no contribution limits, but investment income above the kiddie tax threshold is taxed at the parent's rate. These are the primary kiddie tax trigger for most families.
• Coverdell Education Savings Account (ESA). Contributions are limited to $2,000 per year per child, and income phase-outs apply ($110,000 single / $220,000 MFJ). Like 529 plans, qualified withdrawals are tax-free. However, the low contribution limit makes these less useful for high-income H-1B families who are often phased out.
• I Bonds in child's name. Series I Savings Bonds defer interest until redemption. If redeemed when the child has low income (for example, after age 19 when kiddie tax no longer applies), the interest may be taxed at a very low rate. This is a legitimate deferral strategy.

Planning Strategies

While the kiddie tax limits the effectiveness of income shifting, several legitimate strategies can minimize its impact:

• Prioritize 529 plans over UGMA/UTMA. Since 529 earnings are not subject to the kiddie tax, maximize 529 contributions before funding custodial accounts. Many states offer a state income tax deduction for 529 contributions, providing an additional benefit.
• Choose tax-efficient investments in custodial accounts. If you do use UGMA/UTMA accounts, invest in growth stocks or index funds that generate minimal current income (qualified dividends and long-term capital gains are taxed at preferential rates even under the kiddie tax). Avoid high-yield bonds or REITs that generate ordinary income taxed at the parent's full marginal rate.
• Harvest losses to offset gains. If the custodial account has unrealized losses, consider selling losing positions to offset gains and keep net unearned income below the $2,700 threshold. Tax-loss harvesting works in custodial accounts just as it does in adult accounts, subject to the wash sale rule.
• Defer income until after the kiddie tax age. If the child is close to age 19 (or 24 if a student), defer realizing capital gains until after the kiddie tax no longer applies. At that point, the child's own lower rate applies to the gains.
• Use the child's standard deduction. Every child can have up to $1,350 of unearned income tax-free (2026). For families with multiple children, spreading investments across children's accounts can utilize each child's threshold. A family with three children can shelter $4,050 of investment income at the children's lowest rates.
• Consider the child's earned income. A child with earned income gets a larger standard deduction (up to $16,100 for 2026), which can offset some unearned income. If your teenager has a part-time job, their combined standard deduction is higher, reducing taxable unearned income.

For H-1B families with ITIN dependents, the interaction between the kiddie tax and the Child Tax Credit / Other Dependent Credit is also important. See Child Tax Credit and ITIN Dependents for details on credit eligibility.