Question

In 2021, Sheryl is claimed as a dependent on her parents' tax return. Her parents report taxable income of $500,000 (married filing jointly). Sheryl did not provide more than half her own support.

What is Sheryl's tax liability for the year in each of the following alternative circumstances?
a. She received $9,200 from a part-time job. This was her only source of income. She is 16 years old at year-end.
b. She received $9,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end.
c. She received $9,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 20 years old at year-end and is a full-time student.
d. She received $9,200 of qualified dividend income. This is her only source of income. She is 16 years old at year-end.

Answer 1

In each of the alternative circumstances, Sheryl would not owe any federal income tax since her income falls below the standard deduction and she is 16 years old.

Step-by-step explanation:

To determine Sheryl's tax liability for the year in each of the given alternative circumstances, we need to consider her sources of income and age.

a. Part-time job income:

Sheryl earned $9,200 from a part-time job. Since this was her only source of income and she is 16 years old at year-end, her income would be below the standard deduction, and she would not owe any federal income tax.

b. Interest income from corporate bonds:

Sheryl received $9,200 of interest income from corporate bonds, which is her only source of income. Similar to case (a), her income is below the standard deduction, and she would not owe any federal income tax since she is 16 years old.

c. Interest income from corporate bonds as a full-time student:

In this case, Sheryl is still receiving $9,200 of interest income from corporate bonds as her only source of income, but she is now 20 years old and a full-time student. The fact that she is a full-time student does not change her tax liability in this situation. Similar to case (b), her income is below the standard deduction, and she would not owe any federal income tax.

d. Qualified dividend income:

Sheryl received $9,200 of qualified dividend income, which is her only source of income. Since she is 16 years old, her income falls below the standard deduction, and she would not owe any federal income tax on this dividend income.

Answer 2

Sheryl's tax liability depends on her age and the type of income she received. Since Sheryl is 16 years old at year-end, she would not owe any federal income tax for scenarios a, b, and d, as her income falls below the threshold. In scenario c, even though Sheryl is 20 years old, she would still not owe any federal income tax.

Step-by-step explanation:

a. Since Sheryl received $9,200 from a part-time job and this is her only source of income, her tax liability for the year would depend on her age. Since she is 16 years old at year-end, her earned income falls below the standard deduction for a single filer ($12,550 in 2021). As a result, she would not owe any federal income tax.

b. Similarly, since Sheryl received $9,200 of interest income from corporate bonds, which is her only source of income, her tax liability would depend on her age. Since she is 16 years old at year-end, her unearned income falls below the threshold for filing a federal income tax return. Therefore, she would not owe any federal income tax.

c. Even though Sheryl is a full-time student at 20 years old, her tax liability for the year would still be zero. The $9,200 interest income she received from corporate bonds is her only source of income, and it falls below the standard deduction for single filers ($12,550 in 2021).

d. If Sheryl received $9,200 of qualified dividend income as her only source of income, her tax liability would depend on her age. Since she is 16 years old at year-end, her unearned income falls below the threshold for filing a federal income tax return. Thus, she would not owe any federal income tax.