Whatever you read was wrong. Click on the exemption from withholding section on this link. This is an IRS document and the section has further explanation and a flow chart.
http://www.irs.gov/publications/p505/ch01.html#en_US_2014_publink1000194441
Thanks annoyingDad, you certainly know your stuff ! Okay as such I was not required to file federal taxes but I did it to get refund of taxes from my work study withholding. Do I have to file state (NY) taxes? Earned income was $750, no other income. Scholarship /grant is not taxable.
Maybe someone from NY will respond. You can check the NY taxing authority website for filing requirements. Was any state tax withheld? Are your permanent residence and your school both in NY?
As far as the scholarships/grants being taxable for state tax, the thing to find out is how the state treats them. Federal treats them as earned income for filing requirements and the standard deduction. My state and others treat them as unearned income which may reduced the state standard deduction and/or the state filing requirement threshold. My son always had to pay some state tax on his scholarships because of that.
You must file a New York State resident return if you meet any of
the following conditions:
• You have to file a federal return.
I read those requirements. What I’m confused with is; You have to file a federal return sentence. As such, I did not have to file a federal return. I filed it to get tax refund as some amount was withheld. I owed Zero federal taxes. There is no entry for state taxes in W-2.
If you were not REQUIRED to file a federal return, but only did so to get your withholding back, then I interpret the law to mean that you don’t have to file a NY state return since your income was only $750 and no state taxes were withheld.
My financial aid was revised in last few days, I have received additional $1000 in scholarship for one year. So that would be $ 500 for the half semester in 2014 and remaining half in 2015. Can my parents apply the entire amount(1K) towards 2015 taxes? since this amount was not received earlier in 2014. The reason being if I consider this additional scholarship amount towards 2014 tax year, it won’t let us take advantage of full $4000 in qualified expenses towards American Opportunity Credit.
Or I go by the amount in Box 5(scholarship and grant) of 1098-T and Box 2 (amount billed for qualified tuition), divide both boxes by 2 as the amount is for the entire school and difference will be the amount you claim towards AOC.
This additional 1k Scholarship is not reflected on 2014 1098 T , so what I’m saying above would be legit. Correct?
You don’t determine the tax year by when scholarship is used but when it was given. Go by the 1098. If you received the money in 2014, you include it in 2014 taxes. There is an entire IRS booklet on the subject.
It may help to stop claiming your child as a dependent on your income tax. While that means you will pay more, your student should pay less. This seemed fair to us with our sons because they had enough in scholarships to pay for everything with some left over, plus they worked in the summer, so they were not financially dependent on us anymore. But everyone’s situation is different. Our CPA was helpful with all of this.
See previous threads here (do a search) from the past few years as to why you should ignore the 1098T and use your own records, the financial aid award letter, and account statements from the school. They also explain about allocating scholarships to the semester for which they are intended.
Also, your child is either your dependent or not - it depends on the facts of the situation. You don’t get to “choose” whether to claim her or not. See IRS publications.
@momcat2 Yes, you certainly can choose not to claim a dependent who qualifies as your dependent. The IRS doesn’t make you claim a dependent.
(Note however that not claiming a dependent does not free up the exemption and then allow the dependent to claim herself or himself.)
Collegebound, when was the new scholarship credited to your account? That’s the tax year to include it. If it was credited in 2015 it will be on next year’s 1098T.
@Barfly, your CPA may have seen something different in your situation but for anyone else reading:
MomCat2 is correct, you don’t get to choose who takes the exemption. From the line 5 instructions on the back of the 1040EZ. Using the worksheet means the filer doesn’t get the exemption.
http://www.irs.gov/pub/irs-prior/f1040ez–2014.pdf
And if you check the qualifying child support test in Pub 501 you’ll see that scholarships/grants are not considered support the student provided themselves.
http://www.irs.gov/pub/irs-pdf/p501.pdf
The child also has to actually spend the money n themselves, money that is saved is not counted as support they provided themselves.
@Madison85, why would a parent not take the exemption knowing the child can’t either?
If the wealthy parent gets no benefit from the dependency exemption (phased out), and if the (trust-fund baby)/student could get benefit from AOTC or Lifetime learning credit, I believe it could make sense to not claim the child (child doesn’t claim self either). I think for the lifetime learning credit, no one else can have claimed you, but you don’t have to provide over half your own support through earned income like you do with refundable portion of AOTC.
Noticed one thing. Education credit is showing up as $1500 and AOC credit as $1000, not that it matters as the maximum credit you can get for QEE is $2500 per year. I’m curious why the entire amount is not showing under AOC?
That’s the way it is supposed to show up. Both are pieces of the AOTC.
There’s a non-refundable part that shows up in the credit section that reduces the taxes you owe and a refundable part that is In the same section as W-2 withholdings etc. Even if your tax owed were 0 you could get up to $1000 as a refund.
@annoyingdad, you misunderstood. My sons pay the taxes either way. But if they are dependents (we claim them on our taxes as our dependents) verses filing independently (as self-supporting adults), that changes their bracket. They both work in the summer, and one son made a lot of money in the summer and had a lot of scholarship money, so it made a big difference in the amount of taxes he had to pay. Fair AND legal AND permitted under the tax code.
@MomCat2, no one is required to claim any dependents. Of course, if you have them, it benefits you to claim them. But if you re-read my post, as I mentioned, my sons were not truly financially dependent on us, so it would not be fair for us to claim them. In my opinion, if a kid is on a full academic scholarship that covers room and board, then that kid is not my dependent. That is our situation.
Not only not fair, but not legal. A parent not claiming a child as a dependent for tax purposes, if the parent could claim the child, will not “change the child’s bracket.” The only choice in the matter is whether or not a parent who can legally claim a child as a dependent for tax purposes actually does so, and there is no reason not to do so if in fact the child can legally be claimed as a dependent for tax purposes. Whether or not the parent claims the child as a tax dependent, if the parent can legally do so, if the child is required to file a tax return, that child will be filing as a dependent, i.e. with the single dependent’s filing requirement for earned income of $6,200 vice the single independent’s filing requirement for gross income of $10,150 (assuming the child is under age 65 and not blind).