Unearned Income of Minor Children and Certain Students (LO 6.4)

Brian and Kim have a 12-year-old child, Stan. For 2022, Brian and Kim have taxable income of $52,000, and Stan has interest income of $4,500. No election is made to include Stan's income on Brian and Kim's return.

Click here to access the income tax rate schedules.

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a. For purposes of the tax on a child's unearned income, calculate Stan's taxable income.

To prevent income-shifting, the tax rules required the child to pay tax at the parent's rate, if higher (generally referred to as the kiddie tax) on unearned income from interest, dividends, and capital gains on stock sales. The tax on a child's unearned income applies to dependent children who are ages 18 or younger and full-time students ages 19 through 23 at the end of the year, who have at least one living parent, and who have net unearned income of more than $2,200. Although there is no statutory definition for a parent, the term is generally considered to mean a parent or step-parent of the child.

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b. Calculate Stan's net unearned income.

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c. Calculate Stan's tax for 2022.

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d. If there was no kiddie tax and Stan were taxed at his own rate, what would the tax on Stans income be?