Question

# Jesus, age 14, is a dependent of his parents. During 2020, Jesus’ earned income from wages...

Jesus, age 14, is a dependent of his parents. During 2020, Jesus’ earned income from wages is \$4,000 and Jesus received \$3,000 of interest income. The parent's marginal rate is 24% and Jesus’ marginal rate is 10%. Jesus’ tax is (kiddie tax rules for 2020)

A) \$285.

B) \$377.

C) \$563.

D) None of the above.

Earned income is taxable at Jesus’ marginal rate is 10%. Unearned income (that is interest income) is taxed at Jesus’ marginal rate is 10% upto \$2,200 and the balance \$800 taxed at parent's marginal rate is 24% . Standard deduction is larger of \$1,100 or Earned income plus \$350 (ie. \$4350 in this case).

Taxable income @ 10% = \$4,000 + \$2,200 = \$6,200

Standard deduction = \$4,350

Balance taxable @10% = \$1,850

Taxable income @ 24% = \$3,000 - \$2,200 = \$800

Total tax payable = (\$1,850 x 10%) + (\$800 x 24%) = \$377

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