Question

In 2017, Carson is claimed as a dependent on his parent's tax return. His parents' ordinary income marginal tax rate is 28 percent. Carson's parents provided most of his support. Determine his tax liability given that: he is 23 at year-end. He is a full-time student and earned 12,700 from his summer internship and part-time job. He also received4,400 of qualified dividend income. What is Carson's tax liability?

Answer 1

Carson's tax liability is $3,556, which is the tax on his earned income. The qualified dividend income he received is not subject to tax.

Step-by-step explanation:

Carson's tax liability can be calculated by considering his income, filing status, and his parents' marginal tax rate. As a dependent, he is subject to different tax rates and rules than a single taxpayer. For a dependent like Carson, his income is subject to income tax based on the parent's marginal tax rate.

Since Carson's parents' marginal tax rate is 28%, his earned income from his summer internship and part-time job ($12,700) will be taxed at that rate, resulting in a tax liability of $12,700 * 0.28 = $3,556.

In addition, Carson received $4,400 of qualified dividend income. Qualified dividends are generally taxed at a lower rate than ordinary income. For Carson, since he is in the 0% tax bracket for qualified dividends, he would owe $0 in tax on the dividends.

Therefore, Carson's total tax liability would be $3,556, which is the tax on his earned income.