Question

Exercise 3-21 (LO. 7) Simon, age 12, generates $4,900 interest income and no earned income for 2019. He incurs no investment expenses. Click here to access the 2019 tax rate schedule and 2019 Estate and Trust Tax Rate Schedule. If required, round the tax liability to the nearest dollar. Net unearned income is $ 2,700 Simon's total tax is Feedback Check My Work To reduce the tax savings that result from shifting income from parents to children, the net unearned income (commonly called investm income) of certain children is taxed using special rules. This provision, commonly referred to as the kiddie tax, applies to any child who under age 19 (or under age 24 if a full-time student).

Answer 1

Total interest income of Simon for 2019 = $ 4,900

Interest income is called unearned income for child because it doesn't not come from any employment.

No tax to be paid for unearned income up-to $ 2,200 in 2019.

So, net unearned income stands [ $ 4,900 - $ 2,200 ] = $ 2,700

calculation of Simon's total tax

Net Unearned income	Tax rate	Tax amount
Up-to $ 2,600	10 %	$ 260
$ 2,601 - $ 2,700	24%	$ 24
Simon's total tax =		$ 284