Marcy, age 12, earned $400 from babysitting during 2018. Her parents claim her as a dependent. She also had interest and dividends of $2,600 during the year. She did not itemize deductions.

What is her net unearned income for 2018?

A. $500 B. $2,600 C. $1,550 D. $3,000

The correct answer is A

Explanation:

The net unearned Income is stated as under the Section 1 (g) (4),

Unearned income less the sum of

1. $1,050 in addition,

2. the greater of $1,050 or

if a child itemized, the amount of deductions which is allowable and directly linked with the production of the unearned income.

So,

In this case, Marcy unearned income comprise of $2,600 (dividends and interest). Therefore the net unearned income would be:

= Dividend and Interest - ($1,050 + $1,050)

= $2,600 - ($1,050 + $1,050)

= $2,600 - $2,100

= $500