Dad gives his five-year-old child a certificate of deposit.The $2,000 in interest income received this year is taxed in which of the follow ways?

Question

Quizplus · Accepted Answer

The interest income from the certificate of deposit would be taxed as a part of Dad's income. As per the Kiddie Tax Law, if the child's unearned income exceeds a certain threshold (currently $2,200 for the tax year 2019), then the excess income is taxed at the parent's marginal tax rate. In this case, $100 of the interest income would be taxed at Dad's marginal rate and the remaining $1,900 ($2,000 - $100) would be taxed at the child's rate, which is 10%. Therefore, $950 ($1,900 x 0.10) would be taxed at 10%.

Dad Gives His Five-Year-Old Child a Certificate of Deposit