Question

In 2017, Carson is claimed as a dependent on his parent's tax return. His parents' ordinary income marginal tax rate is 28 percent. Carson's parents provided most of his support. What is Carson's tax liability for the year in each of the following alternative circumstances? Use Tax Rate Schedule for reference.

Carson is 23 years old at year-end. He is a full-time student and earned $11,700 from his summer internship and part-time job. He also received $4,800 of qualified dividend income.

Answer 1

If the dependent is a child under the age of 19 or a full time student under the age of 24 and the income reported is under $6,300, they do not have to file a federal tax return.

They can file if under the $6,300 amount to get a refund of the federal taxes withheld. If they do file for either the refund or if the wages were greater then $6,300, make sure that they indicate on their tax returns that they can be claimed as a dependent on someone else's return. Also, note that if the income was from self employment and the amount is $400 or more they are required to file a return for the income received.

When the child receives income from sources other than employment, such as interest and dividend payments, if the annual total of this type of income exceeds $1,050, then a return must be filed for the child.If parents claim an exemption for the child on their return, then child will not be able to take a personal exemption.

So, taxable income for Carson is $16,500 and thus it falls under 15% tax bracket. And the tax is 6.46% of the total income. At higher incomes, exemptions, many deductions and many credits are phased out. This increases tax bill and marginal tax rate. With these phase outs, adding $1,000 to the income would result in a 15% marginal tax rate.