diff --git a/app/controllers/reports_controller.rb b/app/controllers/reports_controller.rb
index 4addfb06e..e2661d0ba 100644
--- a/app/controllers/reports_controller.rb
+++ b/app/controllers/reports_controller.rb
@@ -408,9 +408,13 @@ class ReportsController < ApplicationController
     end
 
     def apply_transaction_filters(transactions)
-      # Filter by category
+      # Filter by category (including subcategories)
       if params[:filter_category_id].present?
-        transactions = transactions.where(category_id: params[:filter_category_id])
+        category_id = params[:filter_category_id]
+        # Scope to family's categories to prevent cross-family data access
+        subcategory_ids = Current.family.categories.where(parent_id: category_id).pluck(:id)
+        all_category_ids = [ category_id ] + subcategory_ids
+        transactions = transactions.where(category_id: all_category_ids)
       end
 
       # Filter by account
diff --git a/app/models/transaction/search.rb b/app/models/transaction/search.rb
index 1242d8052..8dc3efcb5 100644
--- a/app/models/transaction/search.rb
+++ b/app/models/transaction/search.rb
@@ -91,12 +91,25 @@ class Transaction::Search
     def apply_category_filter(query, categories)
       return query unless categories.present?
 
-      query = query.left_joins(:category).where(
-        "categories.name IN (?) OR (
-        categories.id IS NULL AND (transactions.kind NOT IN ('funds_movement', 'cc_payment'))
-      )",
-        categories
-      )
+      # Get parent category IDs for the given category names
+      parent_category_ids = family.categories.where(name: categories).pluck(:id)
+
+      # Build condition based on whether parent_category_ids is empty
+      if parent_category_ids.empty?
+        query = query.left_joins(:category).where(
+          "categories.name IN (?) OR (
+          categories.id IS NULL AND (transactions.kind NOT IN ('funds_movement', 'cc_payment'))
+        )",
+          categories
+        )
+      else
+        query = query.left_joins(:category).where(
+          "categories.name IN (?) OR categories.parent_id IN (?) OR (
+          categories.id IS NULL AND (transactions.kind NOT IN ('funds_movement', 'cc_payment'))
+        )",
+          categories, parent_category_ids
+        )
+      end
 
       if categories.exclude?("Uncategorized")
         query = query.where.not(category_id: nil)
diff --git a/test/models/transaction/search_test.rb b/test/models/transaction/search_test.rb
index c9c660b2e..c4cf8f53c 100644
--- a/test/models/transaction/search_test.rb
+++ b/test/models/transaction/search_test.rb
@@ -267,6 +267,48 @@ class Transaction::SearchTest < ActiveSupport::TestCase
     assert_equal Money.new(0, "USD"), totals.income_money
   end
 
+  test "category filter includes subcategories" do
+    # Create a transaction with the parent category
+    parent_entry = create_transaction(
+      account: @checking_account,
+      amount: 100,
+      category: categories(:food_and_drink),
+      kind: "standard"
+    )
+
+    # Create a transaction with the subcategory (fixture :subcategory has name "Restaurants", parent "Food & Drink")
+    subcategory_entry = create_transaction(
+      account: @checking_account,
+      amount: 75,
+      category: categories(:subcategory),
+      kind: "standard"
+    )
+
+    # Create a transaction with a different category
+    other_entry = create_transaction(
+      account: @checking_account,
+      amount: 50,
+      category: categories(:income),
+      kind: "standard"
+    )
+
+    # Filter by parent category only - should include both parent and subcategory transactions
+    search = Transaction::Search.new(@family, filters: { categories: [ "Food & Drink" ] })
+    results = search.transactions_scope
+    result_ids = results.pluck(:id)
+
+    # Should include both parent and subcategory transactions
+    assert_includes result_ids, parent_entry.entryable.id
+    assert_includes result_ids, subcategory_entry.entryable.id
+    # Should not include transactions with different category
+    assert_not_includes result_ids, other_entry.entryable.id
+
+    # Verify totals also include subcategory transactions
+    totals = search.totals
+    assert_equal 2, totals.count
+    assert_equal Money.new(175, "USD"), totals.expense_money # 100 + 75
+  end
+
   test "totals respects type filters" do
     # Create expense and income transactions
     expense_entry = create_transaction(
@@ -298,4 +340,29 @@ class Transaction::SearchTest < ActiveSupport::TestCase
     assert_equal Money.new(0, "USD"), totals.expense_money
     assert_equal Money.new(0, "USD"), totals.income_money
   end
+
+  test "category filter handles non-existent category names without SQL error" do
+    # Create a transaction with an existing category
+    existing_entry = create_transaction(
+      account: @checking_account,
+      amount: 100,
+      category: categories(:food_and_drink),
+      kind: "standard"
+    )
+
+    # Search for non-existent category names (parent_category_ids will be empty)
+    # This should not cause a SQL error with "IN ()"
+    search = Transaction::Search.new(@family, filters: { categories: [ "Non-Existent Category 1", "Non-Existent Category 2" ] })
+    results = search.transactions_scope
+    result_ids = results.pluck(:id)
+
+    # Should not include any transactions since categories don't exist
+    assert_not_includes result_ids, existing_entry.entryable.id
+    assert_equal 0, result_ids.length
+
+    # Verify totals also work without error
+    totals = search.totals
+    assert_equal 0, totals.count
+    assert_equal Money.new(0, "USD"), totals.expense_money
+  end
 end