Question

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.

Answer 1

Answer:- B) $377.

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