A 12-year-old child has $5,000 of interest income and no earned income in Year 1. Assume the standard deduction for a dependent is $1,300 and the next $1,300 is taxed at the child's rate. The parents' marginal tax rate is 37%. What is the tax liability for the child?

Total Income: $5,000. Less Standard Deduction: $1,300. Taxable Income: $3,700. Under Kiddie Tax rules (IRC §1(g)), Net Unearned Income (NUI) is taxed at parents' rates. NUI = Total Unearned - (Std Ded + greater of Std Ded or itemized costs). Here, threshold is effectively $2,600 ($1,300 + $1,300). Amount taxed at parents' rate (37%) = $5,000 - $2,600 = $2,400. Tax = $2,400 * 0.37 = $888. Amount taxed at child's rate (assume 10% for lowest bracket) = $1,300 * 0.10 = $130. Total Tax = $888 + $130 = $1,018 (approx $1,020 depending on exact child rate assumption, usually 10%). Option B is the only mathematically consistent answer with the Kiddie Tax structure.