Even though the student’s health insurance is ‘free’, would the value (employer’s cost) of it be part of the support the parent’s provide?
Hey Guys, I’m still looking for answer to my query which got lost here.
Let’s say 1098T Box 2(amount billed for qualified tuition) amount is 31K and Box 5(Scholarship or grants) amount is 22K. We paid 11K (tuition, housing and meal) in 2014 and 11K in Jan 2015.
If we go by the actual amount paid in 2014, we will be paying taxes on 22K -11K = 11K which doesn’t seem right.
Either we should be able to use both, amount billed and scholarship for the entire year or both for the semester. But using Scholarship and grant for the entire year against tuition paid for the half year will skew things up. Can someone help?
Sorry, but I’m not following your math. Since the scholarship amount for 2014 ($22K) is less then the QEE for 2014 (31K + books), no portion of the scholarship is taxable, and you paid enough above and beyond the scholarships to qualify for the AOTC. This was addressed in [Post #6](Do you have to pay taxes on merit scholarship/grant? - #7 by 4kidsdad - Financial Aid and Scholarships - College Confidential Forums). What am I missing?
31K was the tuition billed for the academic school year 2014-15. The amount we paid in 2014 towards tuition, meal and housing was 11K. The confusion I have is, because someone said you can only use the actual amount that was paid towards tuition in 2014.
if I prorate tuition billed and Scholarship (halve it each ) per semester or use the entire amount billed and scholarship received in 2014 then there is no problem as your scholarship received will be much less than the tuition.
Scholarship becomes taxable when you use scholarship/grant for the entire year against bill paid in a semester. Do you see the dilemma?
Even though the total amount of QEE reported on the 2104 1098T was billed was for 2 semesters(including Spring 2015), you only need to report half of it(or the fall 2014 QEE, if not half, as tuition and fees can increase, check your college account statements) as 2014 QEE, since you paid part of the amount amount shown as 2014 QEE in 2015.
You can also add the cost of books paid for in 2014 and any other additional QEE fees/expenses you may have paid separately during 2014 to QEE when completing your 2014 tax returns, and those amounts will not appear on your 1098T.
When you file your 2015 returns, you will report the second half, or actual QEE from the Spring 2015 bill which were included on the 2014 1098T. You will also include the QEE/amounts you pay for the Fall 2015 semester, which will be reported on the 2015 1098T.
So you will report part of the total QEE reported on the 2014 1098T form and part of the QEE reported on the 2015 1098T form when you file your 2015 taxes. Next year you will run into the same issue as this year and will include the remaining amount of QEE from the 2105 1098T for the spring 2016 semester when you file your 2016 tax return.
D1 is a junior this year, so this is my 3rd year working with these forms. As part of my own records for each return, I write detailed notes with my calculations, keep copies of both years’ 1098T forms and also the college account statements which show the payments made by me and the college scholarships which were used to prepare each tax returns. This strategy helps me when the next year’s calculations need to be done.
I think what you are missing is that what you paid also includes the amount of scholarships that was applied the tuition and fees.
Bottom line as I understand it:
Look at your statements from the school. add up the scholarships that were posted to your account in 2014, Is it 22K?
Add up the amounts posted to your account as tuition, fees (not all fees are allow for QEE) that you or the scholarships paid in 2014, This should include tuition and fees for spring 2015 IF paid in 2014, Then add up what you paid for books and required supplies (see Pub 970 for clarification). Note that room and board are not QEE. Look at IRS Pub 970 to see what is allowed. It is a very short list.
Taxable amount=Scholarships (credited to account in 2014)-Tuition/Fees (Billed and PAID in 2014) - Books/Required supplies (paid in 2014)
Non Taxable amount= Scholarships - taxable amount
If you declare part of the non-taxable amount as taxable to claim the AOC then that increases the taxable amount.
The 1089T is not always correct. Do not use the numbers blindly. You need to look at your billing statements.
No one cares (for purposes of calculating QEE) when you paid the bill. Your tuition charge was $31K. Your scholarships were $22K. Done. no other calculations necessary.
The date of payment matters only for determining your eligibility for the AOTC - since that credit applies only for payments actually made during the applicable tax year.
I’ve read @mamag2855’s post about splitting the QEE into Fall and Spring semester, but can’t see the advantage of doing it this way. I find it very handy to have it the entire school year on a single 1098-T, and don’t know why you’d want to make it more complicated.
^^^The date of payment matters only for determining your eligibility for the AOTC - since that credit applies only for payments actually made during the applicable tax year.
AOT credit is what I’m interested in. How do I claim a credit if school is showing entire scholarship/grant for the year was credited upfront in 2014? That is the crux of the matter.
I thought you should be able to halve(for the semester) the amount of tuition and scholarship for the whole year regardless of how school reports it on 1098T.
Taxable amount=Scholarships (credited to account in 2014)-Tuition/Fees (Billed and PAID in 2014) - Books/Required supplies (paid in 2014)
Scholarship credited to the account in 2014 = 22K ( note this 22k scholarship is for the whole year)
Tuition billed = 31K [for the whole year]; ( total payment made in 2014 was 11 K for the semester which ended in 2014), billed and paid is not the same. 11K payment was paid in Jan 2015.
If you go by paid amount then Taxable amount will be = 22 - 11K = 11K.
You had more than $4K QEE on your 2014 1098-T, and you paid more than $4K, so (assuming you meet the income guidelines) you qualify for the AOTC for 2014.
And for any student who is a freshman this year, trying to push your Fall QEE to Spring could well end up backfiring on you, since the AOTC is scheduled to expire in Fall 2017, and you won’t be graduating until Spring 2018. Take advantage of it while it’s still available.
^^You had more than $4K QEE on your 2014 1098-T, and you paid more than $4K, so (assuming you meet the income guidelines) you qualify for the AOTC for 2014.
I’m getting conflicting replies. Some say you have to see in what year the scholarship was credited and how much you actually paid towards QEE in that year.
If I take entire billed amount - entire scholarship amount then it exceeds 4K in QEE
If I halve billed amount and halve scholarship amount then also it exceeds 4K.
How would you report? would you halve both the amount or report entire amounts for both as reported on 1098 T and then just keep track for subsequent year.
What difference will it make? Unless things change, your QEE and expenditures will both exceed $4k for 2015, as well. So what’s the point of trying to carry things over?
To @dodgersmom - My daughter has a full ride scholarship so her excess above QEE must be reported as income. Only claiming the actual semester’s worth of QEE and scholarship received in the fall of her freshman year, 2012 reduced her taxable income that year and worked out best for her, otherwise she was paying significant taxes in advance that she did not need to.
Below is what the IRS publication 970 states about figuring QEE for the AOTC. It states that only amounts actually paid in 2014 can be used to figure the credit for 2014. This is the problem, the 1098T form often(always?) includes amounts billed, not necessarily paid in that tax year. @noname87 summarized things well I think, the figures on the 1098T should not be used blindly. The college account statements will show when items are actually paid and you must compare them to amounts reported on the 1098T and adjust if needed.
From pub 970 2014 page 12 chapter 2:
Qualified education expenses paid
in 2014 for an academic period that begins in the first
three months of 2015 can be used in figuring an education
credit for 2014 only. See Academic period, earlier.
For example, if you pay $2,000 in December 2014, for qualified
tuition for the 2015 winter quarter that begins in January
2015, you can use that $2,000 in figuring an education
credit for 2014 only (if you meet all the other require-
ments)
You cannot use any amount you paid in 2013 or
2015 to figure the qualified education expenses
you use to figure your 2014 education credit(s)
Here the link for pub 970: http://www.irs.gov/pub/irs-pdf/p970.pdf
Also a link to an IRS fact sheet from another thread about shifting unearned scholarship income to the student’s return as earned income in order to claim the AOTC:
http://www.irs.gov/pub/irs-utl/Pell%20AOTC%204%20pager.pdf
^^^You cannot use any amount you paid in 2013 or
2015 to figure the qualified education expenses
you use to figure your 2014 education credit(s)
That’s fair enough. I’m not trying to use what is paid in 2015 towards 2014 QEE.
My financial aid document clearly breaks down tuition($16K) and Scholarships($12K) by fall 2014 and same amount for spring 2015. Therefore clearly $4K in tuition had to paid from outside for the fall semester; As long as we can clearly demonstrate and have a proof that we paid at least $4K in 2014 (actually we paid 11K, the remaining 7K amount was for room, board, non QEE ), we should be able to claim $4000 towards AOC. correct?
It just that 1098T has reported tuition and scholarship for the entire year and box 7 is checked. So with this information let me know what you think?
It doesn’t matter that Box 7 is checked. The amounts you’ve provided clearly indicate that you paid $4k towards QEE in 2014. You can claim the credit.
And if you still haven’t read [IRS Publ. 970](http://www.irs.gov/pub/irs-pdf/p970.pdf), go do that now. Pages 1 - 20.
My sons are in the same position as Barfly’s sons, except for the fact that my undergrad son did not earn significant enough W-2 wages to even pretend to provide half his own support.
From reading Barfly’s posts, it seems to me that her sons may have been able to claim themselves as non-dependents (according to her CPA) because they worked over the summer and ostensibly earned enough W-2 wages to provide half their own support. (Though that last line, “if a kid is on a full academic scholarship that covers room and board, then that kid is not my dependent,” is, unfortunately for us, not IAW IRS regulations.)
I’m at once jealous and annoyed that my son and I didn’t file our taxes with these “it seems fair to me” rules that some other people have used. I was tempted. Very tempted. But we ended up filing IAW the IRS rules … which seem very unfair.
My own undergrad son, who earned scholarships far in excess of his tuition and fees, earned only about $500 in W-2 wages last year. There is no way that he, or I, could claim that $500 paid for more than half of his own support.
(I’ll speak in male pronouns here, since I have a son, and to make it easier on the reader – and on me!)
IAW IRS rules, taxable scholarships cannot be used to provide one’s own support. So, in the Worksheet for Determining Support in IRS Publication 501, taxable scholarship amounts cannot be included, and if your child does not have the W-2 wages to provide more than 50% of his own meals, housing, utilities, personal expenses, and everything else, then your child cannot claim his own exemption as a non-dependent. He is still your dependent. You do not have to claim the exemption for him, of course, but he is not automatically non-dependent just because he had scholarships that supported him for the duration of the year.
I WISH this was not true! It would have saved us a LOT of money if it wasn’t true! But that’s the way the IRS rules are written. And we followed them despite the fact that so many others did not. I’m torn by it.
Haha. Yes, @Barfly, your question does make sense. Unfortunately, the answer, oddly enough, is that we, the parents apparently provided their support! Haha. I hate that! That doesn’t make sense! But it’s the way the IRS rules are written. One has to exclude taxable scholarships when completing the Worksheet for Determining Support. And when one excludes scholarships, well … that leaves mom’s and dad’s money to provide the support, even though we didn’t have to provide any support at all!
You see, the test for support is not to ask “Did you, the parents, provide more than half the student’s support?” No. The support test asks, “Did you, the student, provide more than half your own support?” And when you exclude scholarships, as directed, the answer is No. (in my kid’s case – because he only earned around $500 in W=- last year)
So, @annoyingdad, are you now saying that you agree: if a student’s stipends (taxable scholarships) provide over 50% of their support, they are not dependents? Hmm. You didn’t seem to say that on my thread on this same topic. Sad. 
From what I can tell, that’s not true. My son had about $30,000 in taxable scholarship last year – that’s over and above cost of tuition, fees, and books. That amount certainly provided more than half his own support! He was able to put tons of it in savings after paying all his own bills. And yet, from what I can tell by reading all the publications, he was still my dependent! This has been a very upsetting tax year!
I spent over 3 days going back and forth and back and forth over all of the relevant IRS publications. I wish I could agree with Barfly’s CPA, but I can’t see his/her interpretation as the way the rules were written. Barfly’s CPA’s interpretation seems much more FAIR to me than the way the rules are written! But my son and I filed IAW with the UNFAIR written rules.
I feel so disappointed in myself, actually. I’m pretty sure we could have gotten away with it otherwise, seeing as there’s so much confusion over it … it felt like an ethical dilemma, and I just bit the bullet and chose to do the ethical thing … but, frankly, that doesn’t feel very good right now!
To make matters worse, after calling around a little, I DID find a local CPA who would file my family’s taxes under the same guidelines that Barfly’s CPA used – my son was not my dependent, and his taxable scholarships were used to pay his expenses in the same way as income, which would greatly reduce his tax bill. He said, “We can claim that he is not your dependent because you didn’t provide over half his support.” Skeptical, I pointedly asked, “But I thought the support test was to determine whether HE provided over half his own support, not whether I did?” And he said, “Well, that’s true … (pause) … but didn’t he use those scholarship funds to provide over half his own support?” And I said, “Well, yes! But, I thought scholarships were excluded from determining that. See?” And I showed him the quote in Pub 501. At which point he said, “Oh. I see what you mean. Well, I’ve been doing this for quite some time, and this is the way I usually file for people.”
Oh. Dagger to the heart. I don’t know if I did the right thing or not by standing on my high horse and filing IAW the letter of the law! I may be the only one on the planet who was stupid enough to do so. It hurts my heart. Maybe I was wrong. If so, that was a very expensive mistake.
Simplelife, what if you didn’t exist? Would your son, who would then have the exact same grants and scholarships supporting him, be independent? I think he would and he’d claim himself. ‘You’ wouldn’t have provided anything (since ‘you’ don’t exist), just like you didn’t provide anything this tax year. I don’t remember if you have a spouse or an ex spouse, but say it is an ex spouse; is he any more able to claim this totally independent ‘child’ than you? Did he provide any more (or less) support than you did? No.
I would look at the student/child/adult and exclude all scholarships and grants, look at the income and support he received and see where the 1/2 support number is. If, after excluding all scholarships and grants, the entirety of income for this person is $500 and he earned it all, then he’s independent for tax purposes. There are a lot of people who have no earned income and live off unearned income. They still file taxes and no one else claims them as dependent. If a minister makes only $1000/yr, but all his housing and food, utilities, car, etc is provided by his church and that meets the IRS requirements, then his yearly income is $1000 and he’s earned that and no one else can claim him on their taxes, whether he is 18 or 50.
You can always amend his return.
No, I don’t agree with that in general or even most cases. I’m not going to re-read all of Barfly’s posts but as I recall, Barfly was providing health insurance at no cost to the parents and the students weren’t living at home pretty much at all, not during the summer or breaks. Bought their own cars and were paying insurance. The only thing Barfly mentioned was buying some clothes for them. I called it unusual even for the rare case of full-rides. So removing scholarships/grants from the equation altogether it may be that the students provided 51% of their support. Again, Barfly’s case is unusual.
Barfly consulted a CPA and I’m not going to challenge what a CPA with access to all the detailed info has said to a poster. You challenged a CPA and he backed off and basically said you’d probably get away with it. That’s a decision for each taxpayer to make. I’m just not going to challenge what a CPA tells someone from the comfort of my easy chair and no detailed knowledge of the situation…
Is your support provided really as limited as Barfly’s appears to be?
One thing about the worksheet is that the first few lines determine how much the student actually spent on their support. Income that is saved is not support the student provided themselves, it needs to have actually been spent on their support.
Simplelife, have you seen this thread.
The OP in that thread uses a CPA. The parents aren’t claiming the daughter as a dependent. The daughter is filing single but isn’t taking her exemption either. I’m not an expert in this but does it work out to your advantage even if neither of you takes the exemption? I don’t think a parent has to claim a dependent, it’s just that if they can but don’t, the student can’t take their exemption. But I’m not sure that’s all that’s involved. You could run that by a CPA.
And per the last couple posts in that thread, it doesn’t seem that necessarily avoids the kiddie tax if that’s a factor in your situation.
I’ll just add that I think this is one area of the tax code that is trying to be generous to families, allowing parents to claim students to age 23 as dependents. I think for over 99% of families this is advantageous. There is probably a small fraction of a percent where it may not be.
@annoyingdad, I agree. Nobody can question Barfly’s CPA or @Barfly! Please! I definitely didn’t intend for anybody here to do so! It’s her business and only she and the CPA know her family’s particular situation. I’m assuming she’s doing her stuff correctly for her family. I only used her posts to illuminate my own interpretation of the rules. To me, from reading her posts, it seems that the difference between her sons and mine is that her sons earned W-2 wages enough to legally claim that they provided more than half their own support.
No, my support is not as limited as Barfly’s appears to be. I pay for my kids’ cell phones, car insurance, clothes, and health insurance (through my employer – Employee + 2 or more). My kids aren’t home for more than a week or two of the summers either, but they do generally come home for Christmas and Spring Break. They do research, study abroad, or other educational programs during the summer months. (On that note, I think full-time students are considered to live at home even if they don’t come home. Education is a Temporary Absence.)
But even if you consider the things I DO pay for, the things I DON’T pay for amount to much more. My kids pay for their own housing, meals, gasoline, travel, etc, from their taxable scholarship amounts. If it’s legal to look at it that way, then they DO provide more than half their own support.
If one were to add up the costs of housing, meals, and gasoline alone, which they pay, those amounts would far exceed the incremental costs of health insurance, car insurance, cell phones, and clothes that I pay.
It’s just that they’re paying those costs with their taxable scholarships amounts, and I thought, by reading the regulations and following them to the letter, that we weren’t allowed to include taxable scholarships as a means to pay those expenses … and so that they, therefore, were NOT providing more than half of their own support!
It is so ridiculous that a bunch of well-intentioned, well-meaning, smart people cannot figure this out to the point of consensus. That’s a clear indication that our tax laws are way too complicated. Argh.
@twoinanddone, yes, thanks for your post. We are definitely considering amending his return. The big concern is that an amendment would then draw big attention to the points in question. It probably would have just been smarter to file IAW what seems FAIR, not with what was written. But, we’re definitely going to think about amending.