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Can Turbo Tax Figure Estimated Payments with Kiddie Tax?

College student child has submitted 2021 filing that was a "normal" tax year. However, 2022 changes things and they will need to pay estimated taxes due to a stipend. It is my understanding that the stipend will also count as unearned income and therefore be subject to the Kiddie tax. I am using the TT "Other Tax Situations" section titled "Form W-4 and other estimated taxes" to generate the estimated tax payment vouchers. However,  the only way I see to account for Kiddie tax is by calculating it myself and entering an amount under "other taxes." Is there a better way? Can TT make that calculation?

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4 Replies
LeonardS
Expert Alumni

Can Turbo Tax Figure Estimated Payments with Kiddie Tax?

Stipends are not subject to the kiddie tax.  They are taxed as income not subject to self-employment tax. 

 

You do not have to pay estimated taxes if you owe less than $1,000 in tax after subtracting your withholding and refundable credits, or if your withholdings are at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is less.

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Can Turbo Tax Figure Estimated Payments with Kiddie Tax?

I'm not sure why you say that Stipends are not subject to kiddie tax? I do agree that they are taxed as income not subject to self-employment tax.  Although I can't find anywhere the IRS actually refers to a "stipend," it is my understanding they fall in the general category of taxable scholarships and grants. The instructions for form 8615 say:

 

"For Form 8615, “unearned income” includes all taxable income other than earned income. Unearned income includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, etc. It also includes taxable social security benefits, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2, unemployment compensation, alimony, and income (other than earned income) received as the beneficiary of a trust."

 

Likewise, the stipend will be reported to the child on  2022 1099-Misc Box 3. It appears to me that TurboTax treats this box as unearned income unless specifically told not to. 

LeonardS
Expert Alumni

Can Turbo Tax Figure Estimated Payments with Kiddie Tax?

The Code defines earned income as "wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered."13 In essence, it includes all forms of compensation that are paid for work the taxpayer performed. Any compensation that does not fall into the earned income category is considered unearned income, which by default includes any income that is not earned. Form 8615, Tax for Certain Children Who Have Unearned Income, which reports the kiddie tax, calculates unearned income for a qualifying child by taking all the child's income and subtracting both earned income and any penalties paid for early withdrawal of savings. This means the unearned income includes, but is not limited to, income from dividends, interest income, certain royalties, most rent income, and capital gains. An often-overlooked form of unearned income for a child is taxable scholarship income for which a Form W-2 is not issued because it is not earned income.14

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Can Turbo Tax Figure Estimated Payments with Kiddie Tax?

I think we are in agreement now? You wrote, "An often-overlooked form of unearned income for a child is taxable scholarship income for which a Form W-2 is not issued because it is not earned income." I believe that makes a Stipend unearned income and subject to Kiddie tax.

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