unemployment for dependant

[jmartinez9499]

I ran into a situation...if a Patty, a dependant on her parents return, riceives $5000 in unemployment. Would that be considered as investment income on Patty's return. And fall into a kiddie tax situation of over $1900, Because its unearned income?

[IdaRowe Tuttle]

Jose, interesting question. I do need some additional information. How old is Patty? Is she still in school? Another thought. it is unusual for a dependent to get unemployment.  Remember what the income limitations are if Patty is not in school. She is making more than the minimum to be claimed as a dependent. However, if she is going to school, and under 24. Unemployment would not be considered investment income. Investment income is received when you have placed money into an account that will grow for you without you doing a lot of work; therefore, it also does not treated as investment income for the purposes of Kiddie Tax. I hope this helps  Let me know if you have other questions. Does anyone else have any ideas about this? 

[Tax Pro]

Does this mean that when I reply to the "group's e-mail address,"  all the members get the e-mail?

 

Well I agree with Ida that the dependent's age is a crucial missing information if we are to tackle a question about "kiddie tax." 

 

I do know a little bit about forensics so I think I understand why Josie asked for clarification.  If they opened The Tax Institute's "TheTaxBook" at the tax office when they encountered this, they probably read up on Investment income described as "All taxable income other than earned income, including taxable Social Security and taxable pensions."  (Note: It is silent about unemployment income)  So we would have to go to the Publication for additional guidance.   Pat yourselves in the back if you opened Pub 929.

 

My laptop does not have an adobe reader so bear with me.  Darn, I could not even open a Form 8615.

 

For those who are able to open it up, you might see a section that says: "Investment income defined."  I have encountered this question in TS2012, and I remember I was in the minority during group chats when I said unemployment income is included as investment income when figuring kiddie tax.

 

Just for giggles, are the parents divorced or are they RDP/SSMC with a farm?

 

Now going back to the EA study group focus, you can count on the SEE questions to have complete information for you to arrive at the right answer.  No tricks. 

 

 

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[Tax Pro]

This is cool.  I think for future discussions, let's specify if a dependent is QC or QR.

 

I just want to add that the $5k unemployment income exceeds the exemption amount so we might re-think if the person really qualifies as a dependent.

[Tax Pro]

I think I finally found the question that Josie is referring to.

Which of the following is not considered Investment Income for purposes of the Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, filing requirements:

- Unemployment compensation. 

- Interest and Dividends. 

- Distributions from an inherited retirement account. 

- Tax-exempt interest.  

And here is the definition of Investment Income from the Form 8615 Calculation worksheet instructions on Pub 929, page 16.

"Investment income defined. Investment income is generally
all income other than salaries, wages, and other
amounts received as pay for work actually done. It includes
taxable interest, dividends, capital gains (including
capital gain distributions), the taxable part of social security
and pension payments, certain distributions from trusts,
and unemployment compensation. Investment income includes
amounts produced by assets the child obtained
with earned income (such as interest on a savings account
into which the child deposited wages)." (bold and underline from me)

It further reads:
"Nontaxable income. For this purpose, investment income
includes only amounts the child must include in total
income. Nontaxable investment income, such as tax-exempt
interest and the nontaxable part of social security
and pension payments, is not included."

I worry for the taxpayer who claimed someone with $5k UI as dependent.  They might make the weekly Form 3949A list. ROFLMAO.
Definitely not QR because they would not meet the gross income test (must be under the exemption amount => $3,800 in 2012).  The only logical thing I could think of is QC if under 19 (not required to be a FT student) or permanently and totally disabled and meets all the other requirements.  I'd hate to hear that the dependent is QC-under 24 and FT student because you'd have to rationalize how a FT student gets UI).

Bottomline: UI is considered investment income for kiddie tax purposes.  We need to know the child's age (and we might as well get the SSN and address if this situation needs to go to a Form 3949A.  LOL) and we might want to open the EA Exam Prep WBT Part 1 (2012) so you can join in Josie's fun.  I took the Finals last Wednesday night and I did get a pretty decent score.  I'm sure those who try will get good results, too.

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From: J Martinez <jmarti...@yahoo.com>
To: Tax Pro <taxpr...@ymail.com>
Cc: T Ida Tuttle EA <enrolledage...@googlegroups.com>
Sent: Saturday, June 8, 2013 12:38 AM
Subject: Re: is dependent QC or QR?

I found a similar question on the module 2quiz and it actually count unemployment as investment because it is unearned income. Now I'm confused. I looked it up in Pub 17 and the Deluxe Tax book but I haven't read anything about unemployment. I'm just getting familiar with using the books so I think I must be looking under the wrong headings or something. I ve brought up the subject in the office and we all seen to think it doesn't count as investment income. But then the question in the test would be wrong. However your right about needing more info. Off the top of my head don't remember exact age but she is over 18 and younger then 24. I'd say QR Did Not go to school 2012. Its a 2nd look situation. Her mother has claimed her as a dependant. Thank you guys for your answers. Sent from Yahoo! Mail on Android

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From: Tax Pro <taxpr...@ymail.com>;
To: enrolled-agen...@googlegroups.com <enrolled-agen...@googlegroups.com>;
Subject: Re: is dependent QC or QR?
Sent: Sat, Jun 8, 2013 7:00:13 AM