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California Differences - Kiddie Tax

California conforms to the federal rules that children through age 18 and full-time students age 19 through 23 with the requisite amount of investment income are subject to the Kiddie Tax. Use Form FTB 3800 for the tax computation of a child subject to Kiddie Tax.    

California taxes the child’s investment income over the limit (over $2,500 for 2023) at the parent’s rate, if it is higher than the child’s rate. In most cases, this income subject to the Kiddie Tax will be the same as the amount entered on federal Form 8615, line 1 (unearned income), except only income taxable by California should be included. Also include investment income that was not taxed on the child’s federal tax return but is taxable under California law (for example, municipal bond interest from another state). California hasn’t suspended the Tier 2 miscellaneous itemized deductions on Schedule A, so it is possible that a child with investment expenses could be using those itemized deductions in the computation of net investment income for calculating the state Kiddie Tax.

If the parents elect to report the child’s income on their return, Form FTB 3803 is used; the computation parallels the federal, but the California tax rate is 1% on up to $1,250 (2023) of the child’s first $2,500 of interest and dividend income instead of 10% as in the federal computation. Separate federal and state elections may be made.

Because California has no special capital gains rates, no special computations similar to the Federal Schedule D worksheets are necessary for the state.

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