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Comment by derekp7 | Hacker News Reader

To give an example of complexity that can hit "normal" people, something I just learned yesterday. If you are between 18 and 24, and a student, then if you had received unemployment income that income is considered "unearned income". Therefore it is subject to the highest marginal tax rate (tax bracket) that your parents fall into (which is 22% - 24% for quite a few people).

To me, that is kind of nuts, and not something that follows from normal logic (i.e., it isn't something that you will "get right" by just filling out a standard 1040 form).

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I disagree that it's nonsensical for it to work this way since that unemployment benefit is being granted after your parents are claiming that they are supporting you - so essentially they're getting a big tax deduction on their income for your costs but then the unemployment benefit is being claimed to make sure for a lack of them covering costs - in a simple world one might make the other ineligible but that could result in some folks being put through unreasonable financial hardships due to poor planned or ill-intended returns from their parents so this allows that benefit to be given while also recognizing that something going on here is double dipping.

If you are financially independent then you should make sure your parents aren't claiming you as a dependent, if you aren't then you should be receiving those covering funds from your parents since that's the sort of dependency the dependent class is all about.

The overall law had a good reason, to keep parents from transferring appreciating assets to their children (who wouldn't have any other income), in order to lessen the tax burden of those assets. So the tax code references any unearned income.

It just isn't logical for most people to know that their unemployment income is also unearned income, and that you could be underpaying your taxes even after filling out the 1040 completely (and following the instructions in the 1040 instruction book).

Maybe this case is called out specifically, it doesn't apply to me so I haven't looked for it in the instructions, however it was just something that I ran across that made me scratch my head.

This also happens with some PhD stipends - depends on the school/funding source, but I know a few people who started PhD straight out of college and got screwed by still being dependents. I honestly don't understand why getting a stipend for doing research would be considered unearned.

By “and a student” do you mean claimed as a dependent by someone else?

Yes, because if you aren't a dependent, it's income for your own return, not theirs.

Cool, yeah just wanted to clarify so the comment didn't confuse any non-dependent students.

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