How do you calculate Kiddie Tax?

• • Jeysson is a 16-year-old dependent child who earned $5,200 working part-time and received $4,200 in interest and dividends on stock investments.
  • Jeysson’s marginal tax rate is $10%.
  • His parents’ marginal tax rate is 35%. How much tax is due on Jeysson’s income?

First step:

Gross income: Earned income $5,200 + Unearned Income $4,200 = $9,400

Step Two:

Calculate Taxable Income: Gross Income $9,400 – Standard deduction $5,650 ($5,200 Earned Income + $450 based on the yearly inflation) =$3,750 Taxable income.

Step Three:

Calculating taxes based on parents’ marginal rate which is 35% = $4,200 unearned income – yearly exemption $2,600 = $1,600 x35%= $560.

Step Four:

Calculating taxes based on kids’ rates which is here 10%: $3,750 - $1,600 = $2,150 x 10% = $215.

Total Kiddie tax payable $560 + $215 = $775