My granddaughter is a fulltime college student being claimed as a dependent on her parents tax return. She had earned income in 2020 but was laid off and collected unemployment benefits exceeding the 10,200. exclusion amount. Per the Turbotax program she has to pay federal taxes on the excess unemployment at her parents tax rate because the unemployment is unearned income. Is that correct? Seems unfair to her. Any help or ideas would be appreciated.
Yes, if unearned income after the exclusion was more than $2,200 the rules apply.
Who Must File
Form 8615 must be filed for anyone who meets all of the
1. You had more than $2,100 of unearned income.
2. You are required to file a tax return.
3. You were either:
a. Under age 18 at the end of 2020,
b. Age 18 at the end of 2020 and didn’t have earned income
that was more than half of your support, or
c. A full-time student at least age 19 and under age 24 at the
end of 2020 and didn’t have earned income that was more than
half of your support.
(Earned income is defined later. Support is defined below.)
4. At least one of your parents was alive at the end of 2020.
5. You don’t file a joint return for 2020.