Accounting and Finance Foundations

Unit 9

Accounting and Finance Foundations Unit 9: Taxes 708

Taxes

Chapter 21

Student Guide

Solutions

Because students are typically single and still in school, many of them are listed as dependents on other

individuals’ (i.e., parents’ or guardians’) tax returns. Nevertheless, many of these same students are also

employed and earn their own income. As a result, they are also obligated to pay income tax, although the

federal tax withheld is generally a small amount.

To claim a refund on taxes paid, you must file an income-tax return. However, the rules for dependents

filing returns are different than for people who cannot be claimed as dependents by anyone else.

A dependent’s income is grouped into two categories: earned and unearned. Earned income is the re-

sult of the dependent’s own labor and includes wages, salaries, and tips. Unearned income, on the other

hand, includes money from interest or dividends that you did not physically earn.

For the 2012 tax year, someone who is claimed as a dependent on someone else’s tax return but still files

his/her own return can claim a standard deduction equal to the greater of the following two amounts:

a. $950

b. The person’s earned income plus $300

(but no higher than the regular standard deduction amount)

For the most current guidelines regarding the standard deduction for dependents, go to

http://www.irs.gov/publications/p17/ch20.html#d0e67735.

Example

Hunter Scott is a senior at Lexington High School. Because he is single and a student, his parents still

claim him as a dependent on their tax return. Hunter worked part-time last summer and earned $3,395.

His employer withheld $330 in taxes from his pay. Hunter also earned $400 in interest from his savings

account, and he had no adjustments to his income. If Hunter claimed a standard deduction based on

his earned income plus $300, determine the following: the amount of that deduction; Hunter’s adjusted

gross income; his taxable income; his total tax due; and the amount of his tax refund.

Lesson 21.3 Income Taxes for Single Dependents

Marty Vicki and

Her Husband

Total Income Tax Due

(From Tax Table)

$1,549 $2,681

Amount Withheld During the Year $2,350 $4,560

Refund Due $801 $1,879

Using Tax Tables to Complete 1040EZ (cont'd)