Meredith, age 14, earns wages of $2,100 from her modeling. Since the funds are collected by Meredith's father and used for some of Meredith's living expenses, her father intends to include it in his gross income.
I.The person that actually earns the income will recognize it, Meredith in this case.
II.The Assignment of Income Doctrine prohibits the father from recognizing the $2,100.

A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Question

Meredith, age 14, earns wages of $2,100 from her modeling. Since the funds are collected by Meredith's father and used for some of Meredith's living expenses, her father intends to include it in his gross income.
I.The person that actually earns the income will recognize it, Meredith in this case.
II.The Assignment of Income Doctrine prohibits the father from recognizing the $2,100.
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A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.

Quizplus · Accepted Answer

Both statements are correct. According to tax principles, the individual who earns the income, in this case Meredith, is the one who must recognize it for tax purposes. The Assignment of Income Doctrine further supports this by preventing the transfer of tax liability through the assignment of income to another person, such as Meredith's father in this scenario.

Meredith, Age 14, Earns Wages of $2,100 from Her Modeling