8602 / Can parents include the amount of their child’s unearned income subject to the kiddie tax on their own income tax return? How did tax reform change the treatment of unearned income of a child?
Editor’s Note: Under the SECURE Act, the changes made by the 2017 tax reform legislation with respect to the kiddie tax rules were repealed. The repeal of the 2017 kiddie tax changes was effective beginning in 2020. However, taxpayers had the option of electing to apply either set of rules retroactively, in 2018 and 2019.1
The 2017 tax reform legislation aimed to simplify the treatment of unearned income of minors by applying the tax rates that apply to trusts and estates to this income. Therefore, for tax years beginning in 2018 and 2019, taxpayers could opt to treat the earned income of minors according to the individual income tax rates prescribed for single filers,2 and unearned income of minors according to the applicable tax bracket that would apply if the income was that of a trust or estate (for both income that would be subject to ordinary income tax rates and income that would receive capital gains treatment).3
Under pre-2018 law and post-2019, under certain circumstances, parents can elect to include their child’s unearned income subject to the kiddie tax on their own income tax return, thus avoiding the necessity of the child filing a return. In 2025, the election is available to parents whose child has gross income of more than $1,350 and less than $13,500, all of which is from interest and dividends.4 However, by doing so, the parents increase their adjusted gross income and could become subject to potential phase outs or other reductions in tax benefits that decrease as AGI exceeds certain threshold levels. The election is unavailable if there was been backup withholding under the child’s Social Security number or if estimated tax payments have been made in the name and Social Security number of the child.
1. SECURE Act § 501(c).