My son(17) worked a part-time job last year and received a W-2 his earnings(box 1) was about $3,900 and Fed taxes(Box 2) withheld was about $250, no state taxes withheld. He also had interest income(1099-INT) from a saving account of about $800. His total income is well below the Fed minimum taxable income of $14,600 for 2024. I assumed since his total income was below the Fed minimum that he would be refunded all fed taxes he paid in 2024(~$250). However, it seems that TurboTax calculated and expects that $29 of taxes should be paid on his interest income and is reducing his refund from $250 to $221. Is that correct?
Yes, it is correct. If you can be claimed as a dependent by another taxpayer, your standard deduction for 2024 is limited to the greater of: (1) $1,300, or (2) your earned income plus $450 (but the total can't be more than the basic standard deduction for your filing status). He owes ordinary income tax on his interest income that is over $450.
When a dependent has unearned income (income not earned from working, such as bank interest, prizes, hobby income, and so on) that is taxed at a higher rate. It is often called the "kiddie tax" and is due to a tax provision that is intended to prevent parents from dodging taxes by putting savings in their child's name. While that is how it originally started, it applies to any unearned income of a dependent.