In 2019, Simon, age 12, has interest income of $900 and dividend income of $4,000. He has no investment expenses. Determine Simon's net unearned income and total tax liability.

The Total tax payable by Simon (after rounding off) = $290.

Explanation:

Kiddie tax is applicable as Simon has Unearned Income of more than $2,200. Therefore, the amount above it will be taxed.

Total Unearned income in the given case = $900 + $4,000 = $4,900.

Standard Deduction = $2,200

Net unearned Income = Total unearned income - Standard deduction

= $ 4,900 - $ 2,200 = $2,700.

Total Tax payable by Simon

10% of taxable income up to $2,550 = 10% of $2,550 = $255

24% of the taxable income over $2,550 = ($2,700 - $2,550) * 24% = $36

Tax payable by Simon = $255 + $36 = $291.

Total tax payable by Simon (after rounding off) = $290.

Unearned income = $4900

Tax = $648

Explanation:

Unearned income is income that one has not worked for. It is known as passive income that is not acquired through work, for example, savings accounts, investments and share dividends etc.

If a child has net unearned income of more than 2200 dollars then they are subject to child tax. Simon has unearned income of 4900 dollars in total. He has to pay on 2700 dollars, which is 4900 minus the 2200 child limit. He will then have to pay 24% on the 2700 = $648 tax.