Calculating a Dependent’s Standard Deduction
Course: Income Tax Planning
Lesson 8: Arriving at Taxable Income
Student Question:
Hi,
In the practice example with Jarrod, his standard deduction was calculated as his $2,000 of earned income plus $450, even though he also had $500 of interest income. Why doesn’t the interest income count toward his standard deduction calculation the way the earned income does? It seems like income is income.
Thanks so much,
Instructor Response:
Hi,
Thanks for the question. The formula is specifically the greater of $1,400, or the dependent’s earned income plus $450 — notice it says earned income, not total income.
Earned income is compensation from working. Unearned income, like Jarrod’s interest, comes from investments and isn’t part of that formula.
Does that help clear it up?
