Thanks for the detail, @MiddKid86. If I look at the post from @annoyingdad, he points out that scholarships are not taken into account for determining whether the child provided more than half of his own support. So this is what confuses me. In reality, my sons’ scholarship really do support them. We haven’t needed to support them at all since they started college. But if scholarships aren’t taken into account, then where is their support coming from? Not us! How does a parent determine if they or their child is providing over half of the child’s support when the scholarship are providing all of the support? Does this make sense? My brain hurts.
Use the worksheet on pg. 16 of IRS pub. 501:
http://www.irs.gov/pub/irs-pdf/p501.pdf
Do not factor in any scholarship funds that the child may have received.
@Barfly, even if they have college tuition, room, board paid for by grants/scholarships, do they pay for their own books, personal expenses, gas, insurance, health insurance, cell phone, clothing? Where do they stay in the summer, their own apartment they pay for?
@mommdc, thanks for the worksheet link. They do pretty much pay for everything except health insurance, which is free through my husband’s employer. Their scholarships (not grants) cover books and all expenses, with money left over. Where they are in college, apartment leases are all 12 months, and scholarships cover it for them. But neither of them lived in the apartments in the summer. One did a study abroad for one summer paid out of scholarships, so that is the year we stopped claiming him since he did not live at home at all. One worked out of state each summer and room and board was included by the employer. They have always paid for their own car insurance and gas, and bought their own (very used) cars. We do buy most of their clothes, but one clotheshorse spends his own money on additional clothes. I’ll have to look at the worksheet to see how it works out, but I provided all the detail to my CPA. Thanks again for the info!
To be fair, Middkid provided the worksheet, I just asked a question. Your sons are very fortunate to have scholarships to cover all school expenses and housing and they have good jobs too! If they indeed covered most of their own expenses, then it is what it is.
Sorry. Thanks @Middkid86 for the worksheet. Yes, @mommdc, they’ve been fortunate - and they’ve also worked their tails off in both school and paying jobs, which helped them become so fortunate.
So if I read the worksheet and other info correctly, the cost of education is included in the amount needed to support a dependent, but scholarship funds used to pay for education and expenses are not included as part of the amount paid by either the student or parent for support. If that is the case, neither we nor they are paying over half of their support. If we instead say there is no cost of education (because there is no cost to either us nor them due to scholarships), then that lowers the amount needed for support, and perhaps they do provide over half their own support. Just pointing this out - don’t want to beat a dead horse, but it is a bit of a conundrum.
Here is an example. Let’s say college tuition, room and board, books, fees, etc. (total COA) is $21,000 per year at State U and other expenses such as gas, car maintenance, insurance, entertainment, clothes, etc. is $11,000 per year (I think this seems high), for a total of $32,000 per year needed to support a student. Scholarships are $27,000 per year which leaves $5,000 needed per year, of which the student pays $3000 and the parents pay $2000. The parents are not paying over half of the amount for support, which is $32,000, but neither is the student paying over half. Of course, the scholarships earned by the student are paying over half, but scholarship amounts cannot be included in the amount of support. In this case, neither the student nor the parent is paying over half of the support. Can the students claim themselves as a dependent? Can the parents claim the student as a dependent?
You only count for each of the parent and student what each paid for education expenses and the total support for education would be the sum of those two numbers. You don’t count in the total support for education amounts paid by a third party(the scholarships).
You said your CPA figured this out for you and we’ll assume he did it correctly. I only “called you out” on your post because your situation is rare even for those with full rides because your kids are also paying for a lot of other expenses, not living at home during off-times etc.
So I just wanted to point out for others that you don’t get to choose who gets the exemption and that scholarships aren’t included as support the student provided themselves nor are they included in total support.
Thanks for the clarification, @annoyingdad. Including the clarification that you “called me out”. Totally missed that. Perhaps @mommcd was also calling me out? I thought you were both just trying to be helpful.
No, I was just trying to help you determine who paid most of the support. Like annoyingdad said your sons’ situation is not too common I think. Even if college expenses are covered usually kids don’t have enough income to pay for all of their expenses and live at home in the summer, etc.
And not a lot of employers provide free health insurance.
So even if you are in a good situation to be, it can be complicated at tax time
I put calling you out in quotes in case you had taken it that way. I really wasn’t calling you out, I just didn’t want it to stand in case anyone else reading the thread thought they could choose who gets the exemption. And yes, I was trying to be helpful to you and anyone else in explaining how scholarships relate to the support test.
1098 form I received from school shows two entries 1. Qualified Tuition Amount billed 2. Scholarship grant received.
Amount billed and Scholarship received entrees are for the entire year 2014-2015. I’m assuming while filing 2014 taxes, you can half the each entry. Is this correct?
Amount billed would be box 2 and scholarships/grants box 5. If the amounts are for the whole school year then box 7 should be checked.
No you can’t halve the amounts. If the amounts are for the full year, it means the school billed in December 2014 or earlier for spring 2015. Likewise, they credited scholarships/grants in December 2014 or earlier for spring 2015. Those amounts are applicable to tax year 2014 for determining whether you have taxable scholarships/grants.
For the AOTC though, what matters is when you or your parents paid expenses for spring 2015. If in December or earlier, then they can use those expenses for the AOTC in 2014. If in January or later, those expenses paid would apply to tax year 2015. If you mailed a check or paid by credit card etc. in late December but the school didn’t credit the payment until early January, then you paid those expenses in 2014, not when the school credited them. You need to keep cancelled checks, credit card statements etc. to be able to show when things were paid.
You need to look at your bills and online account to see when these things actually happened.
box 7 is checked. We paid half of Box 2 amount in 2014, other half in 2015. So If I consider half of Box 2 amount (Check paid in 2014) and full amount shown in box 5 for 2014 , that won’t be a fair computation. Would it?
If I compare what was paid ( which was half the tuition) in 2104 with Scholarship and Grant for the entire academic year then obviously scholarship/grant will exceed what was paid in 2014 and hence will call for taxes instead of AOC credit. Doesn’t make sense to me??
^^^^ Those amounts are applicable to tax year 2014 for determining whether you have taxable scholarships/grants.
I am confused by post #71. Are you saying that amount billed and scholarship granted in 2014 is the amount for tax year 2014, even if half of the tuition payment was paid in Jan 2015 and other half was in Dec 2014.
Let’s say 30K was the tuition amount billed in 2014 for the whole year(from 1098T) Amount paid was 15K in 2014 and 15K in 2015.
20K was the scholarship granted in 2014 for the entire year. (From 1098T)
If I go by the amount paid in 2014 then I will owe taxes on 20-15 = 5K as opposed to getting a credit.
@Barfly - If I understand Publ. 501 correctly, the default is that your student is your dependent. The student would only be independent if he or she pays more than half of his/her expenses. Since your student does not do that, he’s not independent. End of story. It doesn’t matter whether or not you pay more than half of his expenses - that’s not the relevant inquiry. From Publ. 501:
Support Test (To Be a Qualifying Child): To meet this test, the child cannot have provided more than half of his or her own support for the year.
Really, @dodgersmom? That contradicts with other interpretations. Since they pay nothing for college, there is no college expense. The way it works is that the scholarships are paid to the university, which applies them to tuition, fees, and on-campus housing and meal plans if applicable, so my sons have no “expense”. The rest of the money is refunded to the student and is generally going to be taxable income to the student. Since it is taxable income to them, then when they use it to pay for rent, utilities, food, etc., they are paying those expenses out of their taxable income. They use their own money from summer jobs and savings for non-school related expenses like gas and girlfriends. Like most things IRS-related, it’s confusing. But no matter how I look at it, we parents don’t pay more than half their expenses, so why should we get to claim them on our taxes? Well, I’m going to go with my CPA on this one, but I’ll have to ask her specifically about this next time I talk to her so that I’m sure I understand! My oldest is out of college and gainfully employed, so it’s not an issue with him anymore. Still an issue with #2 and going to be with #3 next year.
http://www.irs.gov/uac/Who-Can-I-Claim-as-a-Dependent%3F
is this helpful?
Again, @Barfly, the IRS doesn’t ask if you pay more than half the student’s expenses. The relevant inquiry (as I quoted from Publ. 501 above) is whether the student pays more than half of his or her own expenses.
Because that’s the way the law is written.
Keep in mind that students such as yours whose expenses are fully (or almost fully) paid by scholarships are in the minority. Statistically, they’re such a small minority that the tax laws likely don’t even take them into account. For the overwhelming majority, the law, as written, makes sense. For those of us whose students were fortunate enough to get generous scholarships, it’s a bit odd. But no one’s going to rewrite the law just for our few kids. So, if it works to your benefit, take advantage of it.
I’ll repeat from post 52 dodgersmom,
From the qualifying child support test section in Pub 501, scholarships are not considered support the student provided themselves. Scholarships are not counted in the total support of the child.
http://www.irs.gov/pub/irs-pdf/p501.pdf
So in Barfly’s unusual case beyond the rarity of full rides, of the remaining expenses of support, the students appear to be providing over 50% of their support. That appears to be why Barfly’s CPA said they weren’t dependents.
Perhaps the part everyone is missing is that tuition/fees do not count as “expenses” for purposes of determining whether the student or parent pays over half of the expenses under IRS rules.
Similarly, scholarship funds used for tuition/fees do not count as support paid by the student. So that’s a wash. But additional scholarship funds not used for educational expenses are taxable as ordinary income to the student. At that point they are treated not as scholarships, but as ordinary taxable income. Expenses such as rent, utilities, food and gas paid from that source of income is included in support. The student has used his own taxable income (leftover scholarship funds) to pay his own support (room, board, etc.)
To get to this understanding, I have read the relevant IRS publications and googled around a bit, and it takes some work to understand just what is considered an expense, and just what is considered support, because some of the definitions come from other IRS sources, but I think this is right. In any event, I believe my CPA is much better at reading IRS publications than I am, even though I interpret and write similar stuff for a living.
Since no one else here seems to have this issue, this forum should move on, and I will address this with my CPA!