Question

In 2018, Carson is claimed as a dependent on his parents' tax return. 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 2018 Tax Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and Trusts for reference. for reference.

a. Carson is 17 years old at year-end and earned $14,000 from his summer job and part-time job after school. This was his only source of income.

b. Carson is 23 years old at year-end. He is a full-time student and earned $14,000 from his summer internship and part-time job. He also received $5,000 of qualified dividend income.

Answer 1

a. Carson is 17 years old at year-end and earned $14000 from his summer job and part-time job after school. This was his only source of income.

Tax liability $200 as calculated as below

Gross income/AGI $14000   is earned income
Standard deduction ($12000)

Personal exemption $0

So net Taxable income will be = AGI-STANDARD DEDUCTION

= $14000-$12000
                                                 = $2000
Tax rate applicable = 10 %
(see rate schedule for Single individuals)

So Tax Liability will be 10% of $2000

Tax Liability = $200

b. Carson is 23 years old at year-end. He is a full-time student and earned $14000 from his summer internship and part-time job. He also received $5000 of qualified dividend income.

Gross income/AGI (all unearned income) $19000

Earned Income = $ 14000

Unearned Income = $ 5000

Calculation of Tax Liability is as following on Unearned Inocme at Kiddle Tax Rate
Unearned Income = $ 5000 Kiddle Tax Rate Applicable

NET UNEARNED INCOME = $5000-$2100 ($2100 is allowed for deduction)

NET UNEARNED INCOME = $2900

On unearned income kiddle tax will be applicable as follow

Kiddie Taxable Unearned Income	Tax Rate
up to $2,550	10%
$2,551 to $9,150	24%
$9,151 to $12,500	35%
all over $12,501	37%

out of $2900 unearned Income

upto $2550 tax rate is 10% so tax will be $255 (10% of $2550)

and on balance out of $2900 above $2550 i.e. $450 (2900-2550) tax rate is 24% so tax will be $108 (24% of $450)

so total tax on unearned income will be = $255+$108 = $363

Calculation of Tax Liability is as following on Earned Income at rates applicable to Single

Balance Taxable income taxed at Carson's rate is = $2000 i.e. ($14000-$12000)
Taxable income tax at Carson's ordinary tax rates $2000

Tax rate applicable = 10 %
(see rate schedule for Single individuals)
Tax on Earned income @10% of $2000 =$2000x10/100
Tax on Earned income = $200

Total tax will be = Tax on earned income + tax on unearned income

                           =   $200+$363

                           =   $563

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