Question

Unearned Income of Minor Children and Certain Students (LO 6.4)

Brian and Kim have a 12-year-old child, Stan. For 2019, Brian and Kim have taxable income of $52,000, and Stan has interest income of $4,500.

Click here to access the income tax rate schedules.

If Stan's parents elected to report Stan's income on his parents' return, what would the tax on Stan's inc

Answer 1

Answer:

$386

Explanations:

To prevent income-shifting, the tax rules required the child to pay tax at the parent’s rate (generally referred to as the “kiddie tax”) on unearned income from interest, dividends, and capital gains on stock sales. In an effort to simplify the tax of a child’s unearned income, the TCJA has changed the rate on which the child’s tax is computed. Instead of using the parent’s rate, the child now computes tax using the trust and estate tax rates.

The tax on a child’s unearned income applies to dependent children who are ages 18 or younger and full-time students ages 19 through 23 at the end of the year, who have at least one living parent, and who have “net unearned income” of more than $2,200 for 2019.

Therefore, Stan's net unearned income = $4,500 - $2,200 = $2,300

In 2019, the first $1,100 of a child's unearned income qualifies for the standard deduction

If Stan’s parents elected to report Stan’s income on his parents’ return, what would the tax on Stan’s income be:

= (1,100*10% + 2,300 * 12%)

= $110 + $276

$386