Question

3. Which of the following dependent children have income subject to the so-called kiddie tax? • Bob, age 20 and not a student, earned $6,000 in wages and $2,600 in interest income from a savings account. • Carol, age 13, earned $1,000 in wages and $3,000 in dividend income from stock investments • Ted, age 2, earned $2,900 in interest income from a savings account. • Alice, age 9, earned $2,000 in wages and $1,400 in interest and dividend income. a. Bob and Carol only. b. Carol and Ted only. c. Ted and Alice only. d. Alice and Bob only, e. Bob and Carol and Ted and Alice will have income subject to kiddie tax. 4. Sara filed an extension on April 15. On July 15, she filed her tax return and owed $1.000 on a total tax liability of $10,000. She paid the amount owed when she filed the return. Which of the following will apply? a. Failure-to-file penalty b. Failure-to-pay penalty c. All of the above d. None of the above because prepayments were at least 90% of the tax liability and she paid the amount owed when she filed the return within the extension period

Answer 1

Solution1:

Correct Option is (b) Carol and Ted only

Reason:

Kiddie tax is applicable to :

(a) children under 19 years of age and

(b) Children aged 19 to 23 years who are full time students

Whose unearned income exceeds $2,200.

In case of :

1. Bob: Kiddie tax is not applicable to him as his age exceeds 19 years i.e. 20 years but he is not a full time student.

2. Carol: Kiddie tax is applicable to him as his age below 19 yrs (i.e.13yrs) and his unearned income (income form other than wages and salaries) exceeds $2,200 (i.e. $3,000).

3. Ted: Kiddie tax is applicable to him as his age below 19 yrs (i.e.2yrs) and his unearned income (income form other than wages and salaries) exceeds $2,200 (i.e. $2,900).

4. Alice: Kiddie tax is not applicable to him as his age below 19 years (i.e. 9yrs) but his unearned income is below $2,200 (i.e.$1,400).