Taxes for EE savings bonds

[ir63]

I am a 21 years old full time student with no income in 2019. However, I just cashed in my Series EE savings bonds. The accrued interest on them is $5190. I know, I will get 1099-INT form. What will be my tax rate?

[Hal_Al]

The tax, for 2019, on that will be $464.  How you get to that is  complicated. I assume  that you are still claimed as a dependent by your parents. As a full time student, under 24, you are subject to the “Kiddie Tax”* on “unearned income”.  The calculations will be shown on form 8615 of your return  (or form 8814 of your parent’s return**).

Form 8615:  https://www.irs.gov/pub/irs-pdf/f8615.pdf

*The "Kiddie Tax" is a way pf preventing parents from shifting investment income to their children to avoid tax.  It was revised as part of the 2018 tax law to tax a child's income at trust tax rates.

**Since that is your only income, your parents have the option of reporting it on their return and you do not even need to file a tax return. 

[ir63]

I guess, if my parents to report it on their tax return, the tax will be more than $485

[Hal_Al]

No. The tax will be the same.  It's just a convenience  thing. 

[ir63]

It looks like my taxes will be

The first $2600 after $2200 is taxes at 10%, so it will give $260

The next $390 (5190-4800) are taxes at 24%, so it will be $93.6

My total tax will be 260+93.6=353.6.

I don't know how you did come up with $485?

[DoninGA]

For tax year 2019 the first $1,100 of your unearned income is not taxed since you are a dependent.

The tax rate on income for up to $9700 is 10% if your filing status is Single.

See this website for the 2019 tax brackets - https://www.bankrate.com/finance/taxes/tax-brackets.aspx

[Hal_Al]

I came up with $485 by using TurboTax (TT) to fill out form 8615. Form 8615 and worksheets haven't been updated, in TT,  yet, so the correct amount (for 2019) is $464, rather than $485 (the 2018 amount).  

The short  cut (to using the form) looks like this:

The first $1100 is not taxed                                                       $0

The next $1100 is  taxed at 10% (the child's rate), so      $110

The  next $2600  (first trust bracket) is taxed at 10%        $260

The next $390 (5190-4800) is taxed at 24%, so                  $94

                                                                                                    $464

So, the "kiddie tax penalty" is  $55 ($464 minus the $409 [10% of $4090] the student "shoulda" paid).