I am entering data for my full time college student, dependent daughter on her return. It us usually straight forward. She makes about 4K over the summer at an amusement park and gets a small ($150 or so) federal refund each year.
This year, her job at the amusement park was cut short by the pandemic close down. She qualified for PA PUA insurance. (Regular UC + extra $ due to pandemic). She finished up at the amusement park and decided to take a PT job at a local store. She is still a FT student and a dependent.
Her income is about $4k from the brief time at the amusement park and store and another $14K from the PA PUA. The PA PUA withheld $1400 in federal taxes.
In my first walk thru Turbo Tax, I either missed or it did not prompt for UC. I had entered $4K income and it said she was getting a refund of $130. I knew the UC must be entered. did a search and went to the form to enter it. I entered the 14K and the tax withheld: $1400.
I finished up. It did its review. It found an area that I needed to fill in. I need to input ***MY and MY WIFE'S** taxable income off our 1040 form, line 15. I do not EVER recall having to do this before?????
Anyway, when done, suddenly, instead of getting the $130 refund, she owes about $2400.
I have no problem with this...but it t correct???
So she made about $4k working, got 14K in UC and paid in a total of about $1600 in fed taxes.
So on 18K income she will pay $1600(total withheld) + $2400 it says she owes for a total of $4000.
Does that sound right? Are ***MY** wages somehow figuring because she is dependent or something. I just want to make sure this makes sense. The PUA was a blessing don't get me wrong...but does $4K tax on 18K for a dependent make sense?
Yes, that does make sense. Unemployment compensation is considered unearned income. When a dependent's unearned income exceeds $2,100, the excess is taxed at the parent's income tax rate. On the federal return this calculation is done on form 8615 (https://www.irs.gov/forms-pubs/about-form-8615). Pennsylvania does not have a corresponding tax. (California does!)
I guess it makes sense. When I flip it around and said she was not a dependent she actually got a small refund. But she has a dependent so it is what it is.
How does TurboTax know the rate though. It seems it's taxing the income at about 25%. Does the software somehow know to go into my return and grab the number? or is that why I had to put in my gross income from line 15? I did not think my rate was 25% though. I guess I should check.