Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with money her parents have given her to save for college. What are the options Karen has for filing her tax return?

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Mitchell Myers

3 May, 04:43

Assume Karen is 12 years old and her only income is $2,500 of interest income from a bank account with money her parents have given her to save for college. What are the options Karen has for filing her tax return?

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Mira Shepard · Answer 1

Since Karen is a minor, she can receive up to $950 in unearned income per year without paying taxes or having to file a tax return.

Since she receives a larger amount $2,500 - $950 = $1,550, she must pay taxes for the extra amount depending on which type of account her parents opened for her.

Karen's parents probably opened a 529 Education Savings Plan, and if that is the case, she doesn't need to pay any federal taxes. If Karen's parents opened her a custodial account, then she will have to pay taxes for the $1,550 above the $950 threshold. Minors are responsible for filing their own taxes or their parents can file taxes for them. If either Karen or her parents pay taxes, they should pay = $1,550 x 10% = $155