Question

Paige, age 17, is a dependent of her parents. Paige earned $3,900 pet sitting and $4,100 in interest on a savings account. What are Paige’s 2018 taxable income and tax liability?

Answer 1

1. paige's taxable Income

Taxable Income = Total Income - Standard deduction

For 2018 Standard deduuction for dependent tax payer must not be greater than a) $1050 or b) $350 + Earned income of $3900 i.e., $4250

Taxable Income = $3900 + $4100 - $4250

Taxable Income = $3750

2. Paige's tax Liability

At Paige's Tax Rate = (Taxable Income - Income taxed at parents rate) * 10%

Income taxed at parents rate = Interest Income - Standard deduction - Base amount = $4100 - $1050 - $1050 = $200

At Paige's Tax Rate = (Taxable Income - Income taxed at parents rate) * 10%

Paige's Tax = ($3750 - $2000) * 10% = $175

Income taxed at parents rate = $2000 * 28% = $560

Total Tax Liability = $735