I just completed a sample tax return for a 20 year old dependent who had $35,000 of scholarship income and $20,000 of tuition expenses leaving an amount of $15,000 entered with the letters SCH on line 1 of form 1040. TurboTax subtracted $12,200 from the $15,000 leaving $2800 of taxable income on line 11a of form 1040.
TurboTax then uses form 8615 and 8615 line 7 computation worksheet to calculate taxes of $308. The parents name and SSN must be added to form 8615.
So it is correct that TurboTax treats the income as earned income for the entry on form 1040 for the standard deduction amount but then uses 8615 to calculate the actual tax to account for the kiddie tax.
