Satish,age 11,is a dependent of his parents.His only source of income in 2019 is $8,000 of interest income on bonds given him by his grandparents,resulting in taxable income of $6,900.Under kiddie tax rules,calculation of tax requires dividing taxable income between net unearned income and earned taxable income.Satish's taxable income will be divided as follows:
A)net unearned income -$6,900 and earned taxable income -$0.
B)net unearned income -$5,800 and earned taxable income -$1,100.
C)net unearned income -$0 and earned taxable income -$6,900.
D)net unearned income -$8,000 and earned taxable income -$1,100.

Question

Quizplus · Accepted Answer

Under kiddie tax rules, unearned income includes interest, dividends, and capital gains. In this case, Satish's only source of income is $8,000 of interest income on bonds, which is considered unearned income. Therefore, his net unearned income is $6,900 (taxable income) minus $1,000 (the unearned income threshold for kiddie tax purposes) equals $5,800. The remaining $1,100 is considered earned income. Therefore, his taxable income will be divided as follows: net unearned income -$5,800 and earned taxable income -$1,100.

Satish,age 11,is a Dependent of His Parents