Kids taxes

[Michael D76226]

Hello,

My kids have minimal w2 income, about $1000, BUT they have about 1300 in interest from CDs.  So with only $2300 in total income, they owe taxes, about $95.

It has to do specifically with the interest/unearned income since I can play with the numbers, move the income from interest to w2 and there is zero tax owed as expected, on the same total of $2300.

From what I've read, seems like it should just be 10% tax on the interest over $1250, but those numbers don't fit either.

Help?

Thanks!

[VolvoGirl · Accepted solution]

Could be 2 different things.  They are subject to the Kiddie Tax.  I don't know how that works.

Also their Standard Deduction is only the W2 income plus $400 so it doesn't offset all the interest income.   So they have $900 of taxable income.   Tax on that is $91.  

[Michael D76226]

Thanks @VolvoGirl.  It is the standard deduction, which is not actually "standard"...

The lower limit is $400 plus earned income, so...

$1174 income + $400= $1574, which is what TT reports his standard deduction to be.

That leaves exactly $945 taxable x 10% = $94 owed!!!

Thanks Again!

[VolvoGirl]

You got it!   See Table 8 Standard Deduction worksheet for Dependents on page 26
https://www.irs.gov/pub/irs-pdf/p501.pdf

[rjs]

They would not be subject to kiddie tax unless they have unearned income over $2,500 (for 2023). If $1,300 of interest is the only unearned income, kiddie tax does not apply.