The federal Kiddie Tax can apply when a child has investment or other unearned income. IRC §1(g) generally taxes the child’s net unearned income using the parent’s marginal rate when that rate is higher than the child’s rate. A Hilo address does not change the federal rule, but the child may also have a separate Hawaii filing obligation.
Who is subject to the Kiddie Tax?
For 2025, Form 8615 is generally required when a child has more than $2,700 of unearned income, is required to file a federal return, and meets the age and support tests. The common tests are:
- Under age 18 at the end of 2025;
- Age 18 at year-end, with earned income no more than one-half of the child’s support; or
- Full-time student age 19 through 23 at year-end, with earned income no more than one-half of the child’s support.
A parent must be alive at year-end, and the child generally cannot file a joint return for the Kiddie Tax rules to apply. Review the current IRS instructions for adopted children, dependents, support, and special situations.
What counts as unearned income?
Unearned income can include taxable interest, ordinary and qualified dividends, capital-gain distributions, rents, royalties, unemployment compensation, taxable scholarships not reported on Form W-2, and taxable pension or Social Security amounts. Wages, tips, and other pay for work are earned income. Some income has special worksheets, so do not assume every investment item is taxed identically.
The 2025 threshold and net unearned income
The first $1,350 of a child’s unearned income is generally excluded from the Kiddie Tax calculation, and the next $1,350 is generally taxed at the child’s rate. Unearned income above $2,700 is the amount that can be subject to the parent’s rate. If the child itemizes, the Form 8615 instructions can change the first amount based on directly connected deductions. The IRS Form 8615 worksheet also coordinates the child’s taxable income, earned income, capital gains, and the parent’s tax information.
Simplified example
A 16-year-old Hilo student has $8,000 of taxable interest and dividends, no earned income, and no directly connected itemized deductions. A simplified net-unearned-income calculation is $8,000 − $2,700 = $5,300. If the parent’s applicable marginal rate were 22%, the parent-rate portion would be about $1,166 ($5,300 × 22%). The actual Form 8615 result can differ because it uses the child’s taxable income, deductions, qualified-dividend and capital-gain worksheets, tax credits, and the parent’s tax data.
When can a parent use Form 8814?
Instead of filing a separate Form 8615, a parent may sometimes elect Form 8814 to report a child’s income on the parent’s return. IRS Topic 553 describes this limited election for a child whose income is only interest, ordinary dividends, and capital-gain distributions and whose total income is below the applicable limit (for 2025, $13,500). The election has conditions and can increase tax or affect credits, so compare both methods before choosing it.
Hawaii considerations for Hilo families
IRC §1(g) is a federal rule. Hawaii’s income-tax return has its own definitions, deductions, credits, and filing thresholds; do not copy the federal Kiddie Tax calculation directly onto a Hawaii return. Keep brokerage statements, Forms 1099, support records, tuition information, and the parent’s federal return available when preparing the state filing. A Hawaii resident may need both a federal return and a Hawaii return even when the federal Kiddie Tax is small.
Hilo filing checklist
- Separate the child’s earned and unearned income.
- Check the child’s age, student status, support, and parent-alive tests.
- Determine whether unearned income exceeds the current-year threshold.
- Complete Form 8615, including the parent’s tax information and any capital-gain worksheets, or test the Form 8814 election.
- Prepare the Hawaii return separately and verify current state instructions and deadlines.
Bottom line
The Kiddie Tax is designed to prevent shifting investment income to a child’s lower bracket. This article is educational, uses 2025 federal amounts, and is not a substitute for current IRS and Hawaii instructions or individualized tax advice.
