My son has earned income and unearned income

[malotar1]

My 17 year old son made $3063 of earned income and $841.23 of unearned income. Does he need to file federal taxes?  I found the below requirements , however I am confused about the 3rd bullet and if that applies to my son or not.

If a child has both earned and unearned income, that child must file a return for 2021 if:

• unearned income is over $1,100.
• earned income is over $12,550, or.
• earned and unearned income together totals more than the larger of (1) $1,100, or (2) total earned income (up to $12,200) plus $350.

[DianeW777]

Yes, the third bullet applies to your son.  Because he has both earned and unearned income and it's over $1,100 he is required to file a tax return.  His standard deduction will be limited.

For 2021, the standard deduction for dependents is limited to the greater of $1,100 or your earned income plus $350 (but the total can't be more than the normal standard deduction available for your filing status). For 2022, the limit is $1,150 or your earned income plus $400, whichever is greater.

• His standard deduction will be a total of $3,413 ($3,063 +$350). This translates into taxable income of $491.  This is the reason he must file.
• He is not required to file Form 8615 (see instructions).

[malotar1]

when i do within deluxe turbo tax it is stating it comes back with federal owed as  $1062.  it doesnt make any sense

[malotar1]

Daine,

are you stating that i only have to claim the $3,413 as earned income and i dont need to include the $841 unearned when i do his taxes  or to do i need to also include the unearned income as well?

[malotar1]

Diane,

to follow up---- how would i add the  PLUS $350 within my sons taxes.    where would this PLUS $350 be placed? Thanks for all the help.  he only has a couple of things to add but the capital gains unearned income seems to be crushing him on taxes.  Am i required to put unearned income if it is below 1100 if he has to file for $3423 for earned income (3063 + 350)?

[DianeW777]

Yes.  The unearned income is what is causing a taxable income by design. You must include it on the tax return.

Be sure to select that he is being claimed by someone else and it should happen automatically. Once you complete the tax return you should see the correct standard deduction by using Preview My 1040 (click the link).

Congress deliberately makes this happen to prevent parents from harboring income in the name of their children.  If they are claimed as dependents then they will pay tax when dependents meet the threshold to be required to file.

[Hal_Al]

It sounds like TurboTax (TT) may be calculating self employment tax.  How was his earned income reported, on a W-2, a 1099-NEC, or something else? Is the earned income on line 1 or line 8 of form 1040?

You don't add the +350, TT does that automatically when calculating his standard deduction on line 12a (& 12c) of form 1040. It does not go anywhere else. 

Are the capital gains long term or short term or capital gains distributions?

[malotar1]

$2000 for internship for non-profit on a 1099-misc

$1063 1099-NEC for side work as a research analyst

$841 of unearned income from capital gains

no matter how I enter these it comes out TT  shows $1060 owed for federal. how can this be?  Often times errors will show and TT  takes me into business name, address.  my son does not have a business.  as well as THE PARENTS taxable income.  for 2 forms and capital gains it seems way over complicated.

[DianeW777]

What is happening is that your son is being subject to self employment tax.  The Form 1099-NEC definitely implies self employment, however he may have expenses that he can utilize. The expenses must be specifically for the research analyst job only.  If there were no expenses the self employment tax would be approximately $150 on that income alone.

The Form 1099-MISC does not indicate that self employment tax should be paid. In most cases, an intern should report the earnings on line 8 of the 1040 (Other Income) and are not considered self-employed. Therefore, an internship stipend is generally not subject to self-employment taxes.

Enter the Form 1099-MISC as follows: Search (upper right) > 1099misc > Click the Jump to... Link > Update/Edit your entry using the following information

This income is not business income, rather miscellaneous as indicated by your Form 1099-MISC.

It's important for you to select 'None of these apply" and then you should also select the following:

1. Other Common Income > Form 1099-MISC
2. 'No' on the screen 'Did the '____' involve work that's like your main job?'
3. 'No' on the screen 'Did the '____'  involve an intent to earn money?' 

This will report the income without any business activity and it will show up on Form 1040, Line 8 (From Schedule 1, Line 8z).

You can use the Preveiw My 1040 to see the income on the appropriate lines of your return.

1. With the Tax Tools menu open, you can then:
   • View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu.

As we discussed previously, he will have only a minor amount to pay personal income tax on which does not include the self-employment tax. If any of the unearned income is qualified dividends or sales of capital gain investment he will have the special capital gain tax treatment on those pieces of income, if applicable.

[Hal_Al]

Another explanation is the 1099-Misc is entered as unearned income triggering the "kiddie tax"