In 2020, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half of her own support. Her parents are in the 12% marginal tax bracket. Sheryl's income tax rate is 10%. What is Sheryl's tax liability if Sheryl received $5,000 of interest income this year from corporate bonds. This is her only source of income. She is 16 years old at year-end. Note: apply the current kiddie tax rules (as covered in the video lecture on kiddie tax).

$424

Explanation:

The computation of the total tax liability is shown below:

= Unearned income + tax amount

where,

Unearned income is

Since she received an interest income for $5,000 out of which $1,100 is exempt so the remaining amount left is $3,900

Now the first $2,200 would be tax at 10% so it would be $220

And, the rest amount left is

= ($3,900 - $2,200) × 12%

= $204

As this rest amount denotes that it should be taxed at the marginal tax rate

So, the tax liability is

= $220 + $204

= $424

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