Your child's investment income doesn't automatically get taxed at their tiny bracket. Once it crosses $2,700, the excess is taxed at your marginal rate. Below that line sits one of the most underused free lunches in the tax code. Drag the sliders below and watch exactly where the line is — and what it's worth.
For tax year 2026 (returns filed in early 2027), a dependent child's unearned income — interest, dividends, capital gains, rents, royalties — flows through three tax bands:
The trap: above $2,700 the IRS ignores your child's low bracket entirely — the rule exists to stop parents parking investments in a kid's name to dodge their own rate. The loophole: inside the first two bands, qualified dividends and long-term gains are taxed at 0% — so you can realize up to $2,700 of gains per child every year, rebuy the same assets immediately (the wash-sale rule only blocks losses, not gains), and permanently reset cost basis. Tax-free harvesting, fully legal.
The default route once unearned income tops $2,700. The child pays the larger of their own tax or a blended tax: own rates below the line, parent's marginal rates above it. Keeps the 0% capital-gain band intact.
If the child's income is only interest/dividends/cap-gain distributions and under $13,500, parents can fold it onto their own return and skip filing for the kid. Cost: the $1,350–$2,700 band is taxed at a flat 10% (up to ~$135 extra), it inflates parent AGI, and realized gains from selling assets don't qualify anyway.
Qualified dividends and long-term gains inside the first $2,700 are taxed at 0%. Realize up to $2,700/child/year, rebuy immediately (no wash-sale rule on gains), and reset cost basis — potentially forever tax-free.
Plug in your numbers. Everything recalculates live — including whether the kiddie tax even applies, which filing route is cheaper, and how much room is left in the free lanes.
Tax-loss harvesting gets all the press. Gain harvesting is quieter and better: deliberately realize gains inside a 0% bracket, rebuy the same assets instantly (the wash-sale rule only blocks losses), and the gain is permanently erased. The kiddie rules create two windows to do it.
The maneuver the kiddie tax was built to cap — but still works up to the cap: parents gift appreciated stock into the child's UTMA (within the annual gift-tax exclusion), and the child sells it. The parent's embedded gain exits at the child's 0% band instead of the parent's 15–23.8%.
Multiply by siblings: the $2,700 band is per child — three kids harvest $8,100/yr.
Once the child ages out (24+, or earlier by earning over half their support), they own a full 0% long-term-gain bracket: up to $49,450 of taxable income single — roughly $65,550 of total income once their $16,100 standard deduction stacks. A working college student or new grad can harvest tens of thousands tax-free — move the whole appreciated UTMA out across a couple of low-income years.
Recommendations regenerate from your simulator inputs. These are the legitimate ways families actually use the rules — the kiddie tax punishes sloppiness, not planning.
Source figures: Rev. Proc. 2025-32, IRS Topic 553, and the 2026 draft instructions for Forms 8615 & 8814.
| Dependent standard deduction (no earnings) | $1,350 |
| Kiddie-tax trigger (net unearned income) | > $2,700 |
| Form 8814 election — gross income ceiling | < $13,500 |
| 0% LT-gain breakpoint (single / MFJ) | $49,450 / $98,900 |
| Dependent must file if unearned income | > $1,350 |
| Custodial Roth IRA cap (≤ earned income) | $7,500 |
| Trump Account annual cap (from Jul 4, 2026) | $5,000 |
| NIIT MAGI thresholds (S / MFJ / HoH / MFS) | 200k / 250k / 200k / 125k |
| Rate | Taxable income |
|---|---|
| 10% | $0 – $24,800 |
| 12% | $24,800 – $100,800 |
| 22% | $100,800 – $211,400 |
| 24% | $211,400 – $403,550 |
| 32% | $403,550 – $512,450 |
| 35% | $512,450 – $768,700 |
| 37% | $768,700+ |