Kiddie Tax 2027: The Threshold Rises to $2,800 (IRS Official)

Every few years a parent opens a custodial brokerage account for a child, watches a modest amount of interest or dividends pile up, and then discovers that the child’s tax return is not the simple affair they imagined. The kiddie tax exists precisely to stop wealthy families from parking investment income in a child’s name to catch the child’s low tax rate, and the line where it starts to bite is set by a number most people never see: a small dollar amount that moves with inflation each year. The short answer: the kiddie tax threshold rises from $2,700 in 2026 to $2,800 in 2027, because the underlying dependent standard deduction amount goes from $1,350 to $1,400. The IRS made the $1,400 official on November 5, 2026, in Revenue Procedure 2026-35, section 3.02 (news release IR-2026-133); our eleven-month projection was exact.

That one-hundred-dollar move is small, and it should be. But the same $1,400 figure feeds four different rules, so it is worth understanding where it comes from and what else shifts with it. This guide walks through the official 2027 numbers, the Form 8814 election that some parents use instead of filing for the child, the child’s own standard deduction, and the separate alternative minimum tax exemption that applies to children caught by the kiddie tax.

Where the $1,400 comes from

The kiddie tax is written into 26 U.S.C. section 1(g), and the dollar amount that governs it is defined by reference to another provision. Section 1(g)(4)(A) says the child’s net unearned income is the unearned income minus the sum of two amounts: the amount in section 63(c)(5)(A), which is the minimum standard deduction for a dependent (subclause (ii)(I)), plus the greater of that same amount or the child’s itemized deductions directly connected with that income (subclause (ii)(II)). The section 63(c)(5)(A) amount started life at $500 in 1987. Under section 63(c)(4), which applies the section 1(f)(3) cost-of-living adjustment, it is adjusted each year for inflation using 1987 as the base year, with each increase rounded down to a multiple of $50 (section 1(f)(7)(A)).

The inflation measure is the chained consumer price index for all urban consumers, known as the C-CPI-U. The IRS takes the average of the monthly values for the twelve months ending August 31 and compares it with the same twelve-month average of the traditional CPI-U for the base period, converted to the chained scale by the ratio of the two indexes in 2016, following sections 1(f)(3) through (6). The August 2026 figure was published on September 11, 2026, so the data window for the 2027 adjustments closed then.

There is a wrinkle that affects every 2027 projection this year. The Bureau of Labor Statistics did not collect October 2025 prices because of the federal government shutdown, which means that month does not exist in the series. That leaves two defensible ways to build the average. One simply averages the eleven months that do exist. The other imputes a value for October 2025 and averages twelve. For most indexed figures the two methods land in slightly different places, and the choice can decide whether a number rounds up or down. For this figure, it did not matter. The unrounded result was $1,432.75 with the eleven-month average and $1,430.97 with October imputed, and rounding down to a multiple of $50 gave $1,400 in either case. The IRS averaged the eleven published months and confirmed $1,400 in Revenue Procedure 2026-35, section 3.02.

Before projecting anything, the method has to prove it can reproduce the past. Applied to the 2026 inputs, it returns $1,350 for the key amount, $450 for the add-on to earned income in the dependent’s standard deduction, and $9,750 for the AMT exemption. Those are three control figures, and all three match the official numbers in Rev. Proc. 2025-32.

The threshold: 2026 against 2027

The kiddie tax does not start at the key amount. It starts at twice the key amount, because the first slice is covered by the child’s standard deduction and the second slice is taxed at the child’s own rate. Only after both slices are used up does the income get pulled up to the parents’ rate. That structure is why the threshold is simply double the key amount.

In 2027, then, a child with only investment income uses the first $1,400 against the standard deduction, pays tax at 10 percent on the next $1,400, and sees anything above $2,800 taxed at the parents’ marginal rate through Form 8615. The IRS describes the mechanics of that form on its Form 8615 page, and the general rules are summarized in IRS Topic 553. If you want the full walkthrough of who owes what and why, finbarrow’s kiddie tax explainer covers the concept from the beginning.

A worked example: $5,000 of interest

Numbers make the shift concrete. Suppose a child has $5,000 of interest income and no wages, and the parents are in the 24 percent bracket.

2026. The first $1,350 is covered by the standard deduction. The next $1,350 is taxed at the child’s 10 percent rate, which is $135. The remaining $2,300 ($5,000 minus $1,350 minus $1,350) is taxed at the parents’ 24 percent rate, which is $552. The total is $687.

2027. The first $1,400 is covered by the standard deduction. The next $1,400 is taxed at 10 percent, which is $140. The remaining $2,200 ($5,000 minus $1,400 minus $1,400) is taxed at 24 percent, which is $528. The total is $668.

The family saves $19, because $100 of income moves out of the parents’ 24 percent bracket and into the child’s lower brackets, while the 10 percent slice grows by $5 of tax. It is a small gain, but it points in a predictable direction: each time the key amount rises, a little more of the child’s income escapes the parents’ rate.

One caveat on the example. If the $5,000 were qualified dividends instead of interest, the portion above the threshold would not be taxed at the 24 percent ordinary rate. It would be taxed at the parents’ capital gains rate instead, which could be considerably lower. The $5,000 interest case is the cleanest illustration of the ordinary-rate effect, but anyone with dividend-heavy custodial accounts should expect a different result and should compare with the capital gains brackets in finbarrow’s 2027 capital gains projection.

The Form 8814 election

Parents are not always required to file a separate return for the child. Section 1(g)(7) allows them to elect to include the child’s income on their own return using Form 8814, but only when the child’s gross income consists solely of interest and dividends, including capital gain distributions, and falls within a narrow band. The child’s gross income has to be more than the key amount and less than ten times the key amount.

For 2026, Rev. Proc. 2025-32 states the range directly: more than $1,350 and less than $13,500. For 2027, Rev. Proc. 2026-35, section 3.02, gives a range of more than $1,400 and less than $14,000. The IRS explains the election on its Form 8814 page.

What does the election cost? Two things land on the parents’ return. Whatever the child received above $2,800 in 2027 is added to the parents’ own income and taxed at their rate. The middle slice, the income between $1,400 and $2,800, is not added to their income; instead it carries a flat tax of 10 percent, which is at most $140 in 2027, compared with $135 in 2026. In effect, Form 8814 approximates the kiddie tax result without a separate return, and it can be convenient for families with a single child and a bit of bank interest. The tradeoff is that the child’s income now raises the parents’ adjusted gross income, which can ripple into other thresholds on the parents’ return, so the simplicity is not always free.

The dependent’s standard deduction

The same key amount governs what a dependent can deduct. Under section 63(c)(5), a dependent’s standard deduction is the greater of the key amount or the child’s earned income plus a fixed add-on, capped at the regular standard deduction. In 2026 that is the greater of $1,350 or earned income plus $450. For 2027, it is the greater of $1,400 or earned income plus $500 (Rev. Proc. 2026-35, section 3.15).

This matters for two groups. A child with only unearned income gets the flat $1,400, which is what the kiddie tax threshold is built from. A teenager with a summer job and a savings account gets more room, since the earned income plus $500 can exceed $1,400 once wages are high enough, and the deduction rises with it. In both cases the deduction cannot exceed the standard deduction that applies to the filer’s status, which is $16,600 for a single filer in 2027. For the broader picture of how bracket and deduction figures moved for next year, see finbarrow’s 2027 brackets and standard deduction projection.

The child’s AMT exemption

The alternative minimum tax has its own special rule for children subject to the kiddie tax. Under section 59(j), the AMT exemption for such a child is limited to the child’s earned income plus an indexed amount, rather than the full exemption an adult would receive. The indexed amount starts from a $5,000 base set in 1997 and is adjusted by the same section 1(f) mechanism, but this time rounded to the nearest $50 instead of rounded down.

For 2026 the official figure is $9,750. For 2027 the official figure is $10,050 (Rev. Proc. 2026-35, section 3.12), and our projection gave the same under both methods: the unrounded values were $10,059.71 with the eleven-month average and $10,047.21 with October imputed, and both round to the nearest $50 at $10,050. That the two methods agreed was helpful, since the nearest-multiple rule is exactly where a small difference in inputs could otherwise split the answer. For a child with a modest portfolio the AMT almost never comes into play, but it is part of the same family of numbers, and it is covered at greater length in finbarrow’s Form 6251 2026 draft guide for readers who want to see how the adult exemption and its phase-out work.

Who is actually subject to the kiddie tax

None of these figures apply unless the child falls inside the statute’s age and support tests. Under section 1(g)(2), the kiddie tax applies to a child who has not reached age 18 by the end of the tax year, and to a child who is 18 if the child’s earned income does not exceed half of their own support. It also reaches a full-time student between the ages of 19 and 23 under the same earned-income condition. In addition, at least one parent must be alive, and a child who files a joint return is outside the rule.

Planning around a $2,800 threshold

A threshold this low means the kiddie tax is a feature of ordinary custodial accounts, not of exotic ones. Parents who fund college savings should keep this in mind. A 529 plan, covered in finbarrow’s guide to the state landscape of 529 plans, lets investment growth accumulate without annual taxation, which sidesteps the kiddie tax entirely as long as withdrawals are used for qualified education costs. By contrast, a plain custodial account reports its income every year.

What the IRS confirmed

The 2027 numbers appeared in Rev. Proc. 2026-35, released November 5, 2026; the 2026 version is Rev. Proc. 2025-32. The projection depended on how the IRS handled the hole in the BLS data left by the October 2025 shutdown. If the IRS had imputed October, the unrounded key amount would have been $1,430.97; if it averaged eleven months, $1,432.75. It averaged eleven months, and either way the published figure was $1,400, which is why this projection was more stable than many of the others on finbarrow’s IRS 2027 inflation adjustments tracker.

For families deciding now, the kiddie tax threshold for 2027 is $2,800 (twice the official $1,400), the Form 8814 range is more than $1,400 and less than $14,000, and the child’s standard deduction starts at $1,400.

Correction, November 11, 2026: An earlier version misdefined net unearned income and cited the wrong section for the inflation adjustment. Both have been corrected.

Sources

• IRS, Rev. Proc. 2026-35, sections 3.02, 3.12 and 3.15, tax year 2027 kiddie tax amounts
• IRS, news release IR-2026-133, November 5, 2026
• IRS, Rev. Proc. 2025-32, section 4.02 and related figures for tax year 2026
• 26 U.S.C. section 1(g), law.cornell.edu/uscode/text/26/1
• 26 U.S.C. section 63(c)(5), law.cornell.edu/uscode/text/26/63
• 26 U.S.C. section 59(j), law.cornell.edu/uscode/text/26/59
• IRS, Topic no. 553, Tax on a child’s investment and other unearned income (kiddie tax)
• IRS, About Form 8615
• IRS, About Form 8814
• Bureau of Labor Statistics, C-CPI-U series SUUR0000SA0