What Happens When a Child Earns Money on Social Media? — Understanding the Kiddie Tax

Not too long ago, when we thought about children earning their own money, a summer job might have been one of the first things that came to mind.

Today, however, children have many more ways to earn money. They may post videos on YouTube, share content on social media, or sell their artwork or handmade items online.

What starts out as a hobby can sometimes turn into a source of income.

Take Emma, for example. She is 16 years old and loves baking.

Emma began posting photos and short videos of the treats she made on social media. At first, her posts were mostly seen by family and friends. Then one of her videos gained attention, her number of followers started to grow, and she gradually began earning money through advertising and affiliate income.

That made Emma’s mother wonder:

“She’s only 16. What happens with taxes?”

In the United States, being a child does not necessarily mean that taxes do not apply.

And when parents start looking into the tax rules for children, they may come across a term called the Kiddie Tax.

What Is the Kiddie Tax?

The name “Kiddie Tax” might make you wonder:

“Is this a tax that applies whenever a child earns money?”

Actually, no.

Simply put, the Kiddie Tax is a rule that may require certain investment income—such as interest, dividends, and capital gains—of a child under a certain age to be taxed in part using the parent’s tax rate.

In other words, a child does not become subject to the Kiddie Tax simply because they have a part-time job or earn money from their own work.

That is why an important question is not only:

“How much did the child earn?”

but also:

“How did the child earn or receive that income?”

What Happens to the Money Emma Earns on Social Media?

The money Emma earns by creating her own videos and being active on social media does not automatically become her parents’ income simply because she is still a child.

If Emma earns income from work that she performs herself, it is generally considered Emma’s own income.

For example, suppose Emma earns $5,000 in net income from her social media activities.

If she is conducting those activities as a business, the income may be considered self-employment income. If her net earnings from self-employment are $400 or more, she generally must file a tax return.

In other words:

“My child earned the money, so I’ll just add it to my own tax return.”

That is not how it generally works.

And income that Emma earns through her own work is different from investment income, such as interest and dividends.

What If Emma Invests the Money She Earned?

Emma decides not to spend all the money she earns from social media. Instead, she invests some of it.

Over time, she begins receiving dividends from stocks and realizes capital gains when she sells investments.

At this point, the tax treatment begins to change.

For example, compare:

$5,000 Emma earns from her own social media activities

with

$5,000 she receives from stock dividends and capital gains.

Even though both amounts are $5,000, they are not necessarily treated the same way for tax purposes.

Income such as interest, dividends, and capital gains is generally considered unearned income.

When a child who meets certain requirements has a significant amount of unearned income, the Kiddie Tax rules may come into play.

For 2026, if a child who meets the applicable requirements has more than $2,700 of unearned income, the Kiddie Tax rules may need to be considered.

This raises an interesting question:

If the income belongs to the child, why does the parent’s tax rate come into the picture?

Why Does the Parent’s Tax Rate Apply to the Child’s Income?

Without this rule, parents could potentially transfer appreciated stocks or other investments to their children and have the resulting investment income taxed at the child’s lower tax rate, reducing the family’s overall tax liability.

The Kiddie Tax was designed to limit this type of tax reduction through income shifting.

This does not mean that the child’s income is simply transferred back to the parent’s tax return.

The income still belongs to the child, but the parent’s tax rate may be used to calculate the tax on a certain portion of the child’s investment income.

This is an important point in understanding how the Kiddie Tax works.

For example, suppose a parent is in a high tax bracket and has a 16-year-old child with very little income.

The parent might think:

“What if I gift some of my stock to my child? Could the future investment income then be taxed at my child’s lower tax rate and reduce our family’s overall tax liability?”

Not necessarily.

If the Kiddie Tax applies, a portion of the child’s investment income may be taxed using the parent’s tax rate.

In other words:

Putting investments in a child’s name does not necessarily mean a lower tax bill.

What If a Parent Gifts Stock to a Child?

Suppose Emma’s father thinks:

“Emma is starting to become interested in investing, so maybe I’ll gift her some of the stock I own.”

After the stock is gifted to Emma, any dividends she receives from the stock are generally considered Emma’s income.

If Emma later sells the stock for a gain, the capital gain will also need to be considered.

At that point, her father might think:

“Emma has very little other income. Wouldn’t the tax be lower if she sells the stock instead of me?”

Not necessarily.

If the Kiddie Tax applies, the parent’s tax rate may come into play when calculating the tax on a certain portion of Emma’s investment income.

In addition, when Emma sells stock that was gifted to her by a parent, the basis of the stock must also be considered when calculating the capital gain.

In other words, when gifting appreciated stock to a child, it is important to think beyond:

“Will there be tax when I make the gift?”

You should also consider the tax consequences while the child owns the stock and when the child eventually sells it.

Building Assets for Your Children or Grandchildren

Many families want to start building assets early for their children or grandchildren.

They may open an investment account, gift stocks, or set aside money for future expenses such as education or the purchase of a home.

These are all ways of planning for the family’s future.

However, it is not as simple as assuming:

“If the assets are in the child’s name, we can take advantage of the child’s lower tax rate.”

As the value of investment assets grows, it may become important to consider not only the current tax consequences, but also future dividends, capital gains, basis, and the Kiddie Tax.

For example, suppose you are considering gifting stock to a child or grandchild that you have held for many years and that has significantly increased in value.

Rather than thinking only about who should receive the stock, it is also important to ask:

“How much gain could there be if this stock is sold in the future?”

Transferring assets to help a child and determining the most appropriate way to transfer those assets from a tax perspective are not necessarily the same thing.

That is why, when transferring a significant amount of investment assets to a child or grandchild, it is important to consider the potential tax consequences before making the gift, rather than waiting until after the assets have already been transferred.

Earning Money Can Be an Opportunity for Children to Learn About Money

More children may begin earning income from things they enjoy, just like Emma.

Earning money on their own for the first time.
Saving some of it.
And perhaps becoming interested in investing.

These experiences can be valuable opportunities for children to learn about money.

There is also something important for parents to keep in mind:

Income a child earns from their own work and income they receive from investments are not necessarily treated the same way for tax purposes.

And when parents or grandparents transfer investment assets to a child, the Kiddie Tax rules may come into play.

Perhaps your child has started earning money.
Perhaps your child has begun investing.
Or perhaps you are thinking about gifting stock to a child or grandchild.

In any of these situations, consider not only:

“How much income is there?”

but also:

“How was that income generated?”

And if you are considering transferring a significant amount of assets to a child or grandchild, reviewing the potential tax consequences before making the transfer can be an important step in family tax planning.

This article is intended for general informational purposes only and does not constitute individual tax advice. The tax treatment of the Kiddie Tax and a child’s tax return may vary depending on the child’s age, the type and amount of income, student status, level of support, and other circumstances.