Question

Exercise 3-21 (Algorithmic) (LO. 7) Simon, age 12, generates $4,880 interest income and no earned income for 2018. He incurs no investment expenses Click here to access the 2018 tax rate schedule and 2018 Estate and Trust Tax Rate Schedule. If required, round the tax liability the nearest dollar. a. Simon's net unearned income. 2,780 b. Simon's total Federal income tax liability.

WTF?!

Answer 1

Answer

a. Simon's total interest income = $4,880

Unearned income there hold (2018) = $2,100

Net unearned income = $4,880 - $2,100 = $2,780

b. Calculation of Federal income tax liability -

As per the kiddie tax rates for 2018,

for net unearned income upto $2,550, tax rate is 10%

for net unearned income from $2,551 to $9,150, tax rate is 24%

So, for unearned income of $2,780

$2,550 is taxable at 10% and ($2,780-$2,550=$230) is taxable at 24%

tax shall be calculated as follows -

($2,550*10%) + (230*24%)

$255 + $55.2

= $310.2

Hence, Simon's Federal income tax liability is $310.2