Question

In 2018, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half her own support. What is Sheryl's tax liability for the year in each of the following circumstances? b. She received $6,500 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end. c. She received $6,500 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 20 years old at year-end and is a full-time student. d. She received $6,500 of qualified dividend income. This is her only source of income. She is 16 years old at year-end.

Answer 1

b.

Under 18, has unearned income from bond interest, subject to kiddie tax.

Description	Amount	Explanation
1.Gross Income/AGI	$6,500.00	All unearned income from interest
2.Minimum Standard Deduction	$1,050.00	Minimum for taxpayer when claimed on parent’s tax return
3.$367.5 (35%) + earned income	$367.50	$367.5 (35%) + 0 earned income
4.Standard deduction for dependent on another person’s tax return	$1,050.00	$1,050>$367.5
5.Personal Exemption	$0.00	Claimed as dependent on parent’s tax return
6.Taxable Income	$5,450.00	$6,500-$1,050-0
7.Gross unearned income minus 2000	$4,500.00	$6,500-$2,000
8.Net unearned income	$4,500.00	Lesser of $5,450 or $4,500
9.Parent’s marginal tax rate	35%
10. Kiddie tax	$1,575.00	$4,500*35%
11.Taxable income taxed at Sheryl’s tax rate	$950.00	$5,450-$4,500
12.Sheryl’s income tax rate	10%	Single filing status
13.Tax on taxable income using Sheryl’s’ rate	$95.00	$950*10%
TOTAL TAX LIABILITY	$1,670.00	$1,575+$95

c.

A full-time student over 18, but under 24, has unearned income from bond interest is subject to kiddie tax.

Description	Amount	Explanation
1.Gross Income/AGI	$6,500.00	All unearned income from interest
2.Minimum Standard Deduction	$1,050.00	Minimum for taxpayer when claimed on parent’s tax return
3.$367.5 (35%) + earned income	$367.50	$367.5 (35%) + 0 earned income
4.Standard deduction for dependent on another person’s tax return	$1,050.00	$1,050>$367.5
5.Personal Exemption	$0.00	Claimed as dependent on parent’s tax return
6.Taxable Income	$5,450.00	$6,500-$1,050-0
7.Gross unearned income minus 2000	$4,500.00	$6,500-$2,000
8.Net unearned income	$4,500.00	Lesser of $5,450 or $4,500
9.Parent’s marginal tax rate	35%
10. Kiddie tax	$1,575.00	$4,500*35%
11.Taxable income taxed at Sheryl’s tax rate	$950.00	$5,450-$4,500
12.Sheryl’s income tax rate	10%	Single filing status
13.Tax on taxable income using Sheryl’s’ rate	$95.00	$950*10%
TOTAL TAX LIABILITY	$1,670.00	$1,575+$95

d.

She is under 18 and has unearned income from dividends, therefore she is subject to the kiddie tax.

Description	Amount	Explanation
1.Gross Income/AGI	$6,500.00	All unearned income from interest
2.Minimum Standard Deduction	$1,050.00	Minimum for taxpayer when claimed on parent’s tax return
3.$367.5 (35%) + earned income	$367.50	$367.5 (35%) + 0 earned income
4.Standard deduction for dependent on another person’s tax return	$1,050.00	$1,050>$367.5
5.Personal Exemption	$0.00	Claimed as dependent on parent’s tax return
6.Taxable Income	$5,450.00	$6,500-$1,050-0
7.Gross unearned income minus 2000	$4,500.00	$6,500-$2,000
8.Net unearned income	$4,500.00	Lesser of $5,450 or $4,500
9.Parent’s marginal tax rate	15%
10. Kiddie tax	$675.00	$4,500*15%
11.Taxable income taxed at Sheryl’s tax rate	$950.00	$5,450-$4,500
12.Sheryl’s income tax rate	0%	Single filing status
13.Tax on taxable income using Sheryls’ rate	$0.00	$950*0%
TOTAL TAX LIABILITY	$675.00	$675+$0