1099Q. 1098T confusion continues

[LenaH]

As stated in another post, kiddie tax is taxed at your marginal tax rate. To determine your marginal tax rate, you would look for your taxable income under your filing status in the chart below and see the adjacent tax rate. The first $2,200 of your daughters unearned income is not subject to kiddie tax.  

 

For more information, please see What is the 2020 Kiddie Tax?

@confusedrf

[confusedrf]

Thank you so much. Perhaps this is starting to make sense. So the tax rate is the marginal rate not the effective rate shown on my tax return?

When it asks for my line 15 taxable income, let's say I put in $80,005. That would  cause TurboTax to calculate a 22% tax rate against my daughter's income less the first $2,100 you mentioned. Correct?

That is actually a good chunk of change and probably what the software calculated. I will check tomorrow.

We are not complaining and we're glad she got the pua insurance. It just seemed like it was an awful huge chunk and I wanted to be sure it wasn't supposed to be taxed my quote unquote effective rate but rather this marginal rate.

[confusedrf]

Actually, looking at your chart 80,005 would put me 12%! I think I get the idea though.

[confusedrf]

Well....can you answer this. I found the form where  had to put my line 40 income into my daughters return: Form 8615.

what number exactly is used to get the % from the table above?
My line 15 total entered?

My Line 15 total PLUS my daughters income?
What part of my daughters income is this 22% applied to? Her regular Wages + her PUA or just the PUA?

The 22% is close but not exactly on the mark.   Funny thing is its close to 22% however if I knock my line 15 Amt down from say something in the 80's to say something in the70's...the taxable amount only drops a few bucks...so know I am thinking its using my Line 15 + some portion of hers to get the rate...yet if that is so, it looks to be taxing a little less than I would have thought.

If yo can answer I'd appreciate it and can wrap things up. My stuff is done with the1099Q and 1098T in her name on my return where we got the AOC.  I understand I need not enter the 1099Q/1098T stuff on hers...but must enter the 1099G for PUA...she owes about $2400...its a wash!  LOL!!! If I have this wrong let me know....just curious about what wages it looks at to get the % in your chart above.

[confusedrf]

Anyone?  For my dependent daughter and her PUA UC compensation....It prompts to enter my line 15 1040 taxable wages on her return....does it then add her wages to this to determine the  % tax owed based on the above table in prior posts.

[CatinaT1]

I think I answered this in your other post.  Let me know if you have additional questions.

Form 8615 must be filed for a child who is a full-time student (at least age 19 and under age 24 at the end of 2020) and who didn’t have earned income that was more than half of the child's support, AND had more than $2,200 of unearned income.

Unemployment is considered unearned and it's what is triggering this.

The unearned income over $2,200 is taxed at the parent's rate if the parent's rate is higher than the child's. Form 8615 to used to figure the child's tax.  You want to make sure you are entering your filing status, your income from line 15 and your total tax from line 16.  Only the unearned income over the $2,200 is taxed at your rate, not all her income.

https://www.irs.gov/pub/irs-pdf/i8615.pdf

[confusedrf]

I appreciate the response but I don't think anyone is specifically answered my question. I apologize if I've made it confusing.   :(

if I my line 15 taxable wages are say $80,500... and her unearned income... less the 2200... is 12,000 ... Considering the chart above... am I looking at the single(her) or married(me)  column and more specifically am I looking for the row for  $80,500 or $90,700 (my taxable income plus her unearned taxable) to get the percentage due. By the way, in this example I see the percentage is 22% in either case....BUT...  if it's indeed only supposed to be looking at MY 80,500 in wages, if I lower that to say 79,000 I would think that would bump the percentage due  to 12 percent.... but it's not it reduces it a little but not by a full 10%

Final question does it just look at my line 15 wages to determine the percentage from the chart above or does it look at my line 15 wages plus her unearned income added together to determine the percentage?

[confusedrf]

Trying to make heads or tails out of the 8615 form it indeed seems to be looking at my taxable income plus her unearned taxable income when grabbing the percentage to tax by... Just trying to make sure this sounds right before I hit the submit button

[CatinaT1 · Accepted solution]

Here is an example of a completed form that might help you understand.  In this example the child has unearned income of $3722 (unemployment and interest income).  The child's taxable income from her return, line 15 of 1040 is $3772.

The parents taxable income from line 15 of the 1040 is $20568.  There are no other children in the household with unearned income, so line 7 is 0.

For line 9, you are looking at the tax table under your filing status (this example is head of household) for the tax on the income listed on line 8.  Line 8 is your taxable income plus the amount of your child's unearned income minus the $2200 threshold.  I believe you said this should be $12000 in your case.

Line 10 is your tax as listed on your return on line 16.

Line 11 is the difference between the tax you would pay if you included her $12000 on your return (which you are not doing, you are only doing this for a calculation) and the tax you are actually paying. Essentially figuring the tax on $12000 at your tax rate.  This is the amount of tax she will pay for the $12000.

Line 14 is determining the remaining income to tax at her tax rate.  You will look this number up in the tax table under single (your daughters filing status).  

This tax amount will be added to the tax you calculated above to figure her total tax.

She is paying your tax rate on the unearned income (minus the $2200) and her regular tax rate on the remainder of the income.

You can't really look for a percentage because your income and the tax you pay may be adjusted due to credits and deductions.

Does this help?

[confusedrf]

I believe so. I think the key thing is I was assuming my taxable income alone determined what percentage of tax she owes....  but I believe I have to add in her unearned income to this and then let the software do its thing which comes out close to the 22%. But I appreciate the post and will compare my form to the one you show.

Thanks!