Question

Paige, age 17, is a dependent of her parents. Her parents report a taxable income of $120,000 on their joint return (no qualified dividends or capital gains). During 2020, Paige earned $3,900 pet sitting and $4,300 in interest on a savings account. What are Paige's taxable income and tax liability for 2020?a. Paige's total taxable income is $ _______.b. Paige's tax liability is $ _____.

Answer 1

Paige's total taxable income is $8,200. Her tax liability is $820.

Step-by-step explanation:

Paige's total taxable income is $8,200. This is calculated by adding up her earnings from pet sitting ($3,900) and interest on a savings account ($4,300).

To determine Paige's tax liability, we first need to find her marginal tax rate based on her taxable income. Since she is a dependent and her parents' taxable income is $120,000, we can refer to the tax schedule.

Looking at the tax schedule, we find that Paige's taxable income of $8,200 falls within the lowest tax bracket. Therefore, her tax liability is calculated using the rate applicable to that bracket, which is 10%.

Using the formula: tax liability = taxable income * marginal tax rate, we can calculate Paige's tax liability. So, Paige's tax liability is $820.

Answer 2

a. Paige's total taxable income is $3,950.

b. Paige's tax liability is $395.

Step-by-step explanation:

Since Paige is included in her parents tax filings as a dependent, her standard deduction will be the greater of:

$1,100

or

earned income + $350 = $3,900 + $350 = $4,250

Paige's taxable income = $3,900 + $4,300 - $4,250 = $3,950

Paige's tax liability = $3,950 x 10% = $395