Question

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Lincoln, age 14, is a dependent of his parents (his parent’s provided over half of his support). During 2020, Lincoln’s earned income from wages is $5,000 and Lincoln received $2,500 of interest income. The parent's marginal rate is 22% and Lincoln’s marginal rate is 10%. Lincoln’s tax is (kiddie tax rules for 2020) A) $251. B) $300. C) $1,850. D) None of the above.

Answer 1

Answer is option A $ 251

A. Earned Income ( income from Wages) $ 5000

B. Unearned Income(Interest Income) $ 2500

C.Total Income (A+ B) $ 7500

D.Standard Deduction ( higher of $ 1100 or Earned income + $ 350)   $ 5350 (5000+350)

E.Total taxable income(C- D) $ 2150

F.Unearned income minus basic exemption ($ 2500- $ 2200) $ 300

G.Earned income to be taxed at normal rate (E- F)   $ 1850 (2150-300)

H.Kiddie Tax (F x parent's marginal income ie.$ 300 x 22%)   $ 66

I.Normal tax on earned income (G x Lincon's marginal rate ie. $ 1850 x 10%) $ 185

J. Total Tax (H+I) $ 251 (66+185)