Can the parents put taxable scholarship/grant income that their dependent child student recvd on the parents’ 1040 wages line 7 with the nomenclature of SCH?
We noticed that this SCH income, if filed under a student’s return, wd broach the filing threshold for the student. The parents are low income. and so I suspect total taxes wd be less if folded into the parents’ bracket .
No, never. Only investment income can ever be reported on a parent’s return and only if that is the only income a dependent has.
See the 3rd section in the link.
http://www.irs.gov/taxtopics/tc553.html
Besides, the student filing their own return as a dependent still gets their standard deduction which will reduce the tax owed. Taxable scholarships/grants are earned income for the purposes of having to file and the standard deduction. They are unearned income for the purpose of the kiddie tax(form 8615). They are not investment income for the purpose of form 8814.
I came to the right place as I tried googling and calling the IRS and cd not come up with anything even close to your informative answer with back up, annoyingdad - thanks. It was a 1,000 bucks (fed and state) that the kid wd have to pay vs zero as the parents were 20k agi.
Could your kid claim even more taxable scholarships, so that you could claim some education tax credits?
4kids, how would the parents get tax credits if they are not paying? arent tax credits a way to mitigate the sting of paying for college?
@roderick - The parents can claim the AOTC for taxable scholarship monies that were applied to to the student’s qualified expenses. Read Publ. 970.
And, yes, as @4kidsdad noted, the student can declare some of his or her nontaxable scholarship monies as taxable (thereby increasing his/her tax liability), so as to permit the parents to claim a larger AOTC. The increased AOTC should more than offset the increased tax liability. Just be aware that the parents’ low income (and presumably commensurate low tax liability) will limit the amount of AOTC they are able to claim.
State is another matter. My state treats taxable scholarships/grants as unearned income all around so the state standard deduction was lower than if it were earned income. So my son always owed more state than federal. How much of the $1k was federal? This was in the years before the kiddie tax applied.
To owe $1k of federal tax, with the kiddie tax not mattering much if at all because the parents are in a low bracket, would take a large taxable amount over the $6200 standard deduction. Of course there may be other income from work or interest etc.
400-500 fed; a little more for state; I rounded up. I think turbo tax did not yield a tax credit for parents; i can dbl ck this and walk it thru.