<p>My son has 7,781 in taxable scholarship monies (aid not used for tuition, fees, and books). My accountant did not know how to handle this, so I showed him IRS publication 970. </p>
<p>The Income tax return now has 8,826 on line 7 (with a notation SCH 7781). His total AGI is 9,043. (His actual earnings from work-$1,045). I am having trouble with FAFSA form and when I called the FAFSA hotline, the person said I needed to call the IRS - because the income tax form did not sound correct. (I tried, but wait time was more than an hour).</p>
<p>When I initially used EFC calculators using just his earnings from work (and do not include the scholarship monies in his AGI), his expected contribution is 175. </p>
<p>When I use 9,043 as AGI; 1045 as earned income; 313 as taxes paid AND 7,781 on the line for student earnings from scholarship monies, his EFC is 1694. If I change his earned income to 8,826 (since this is the amount on line 7 of his income tax return, his EFC is 1397.</p>
<p>The FAFSA person said the scholarship monies should not impact the EFC, but it appears they do - I am using the EFC calculator on the College Board website which accurately predicted my daughter's EFC (she has no scholarship monies in her AGI).</p>
<p>Can anyone tell me what I am doing wrong on the FAFSA form? Thank you in advance.</p>
<p>Two things…first, it’s a bit scary that your accountant did not know how to handle the excess scholarships. Did he/she calculate whether you could benefit from taking the AO Credit? Also, why are you using College Board’s EFC calculator and not filing FAFA? Or using the EFC Formula Guide to estimate? I don’t think the calculator is completely accurate…for example, a student with under $5K in income and no assets would not have an EFC of $175 because students have an income protection allowance. I’d go over the taxes one last time to make sure they were filed in the most advantageous way and then use FAFSA or the Formula Guide to calculate EFC.</p>
<p>Yes sc8rmom, it is scary that the accountant did not know how to handle the exces scholarships. Mine said that he ignores amounts over qualified expenses. That is why I do my own taxes. </p>
<p>OP, are you declaring your kids as dependents? If so, you may be eligible for the AO credit.</p>
<p>I could not take the AO credit for my son because his tuition, fees, and books were paid in total by his scholarships. I had to send in the FAFSA form before his income tax return was filed. I have not yet filed a FAFSA correction for him. The initial FAFSA submission did not include the scholarship monies in his AGI. I will try the formula guide again. I apologize for the misleading EFC - I was referring to my son’s contribution. I did not include the 3474 that represents my contribution. </p>
<p>I know this is my expected amount because I was able to file a FAFSA correction for my daughter. I did take the AO credit based on her college costs as her fin aid was significantly less. We did look at my taxes with the tuition fees reduction (based on my daughter’s costs. We went with the AO credit because I pay significantly less in taxes and receive a larger refund.</p>
<p>sk8rmom-Using the Formula Guide, my son’s contribution is $175. If I am reading directions accurately, I will make these corrections to his FAFSA. Change line 35 (AGI) to 9043, but I will leave line 38 as $1045 to reflect his W-2 and not line 7 of his 1040-since that includes the scholarship monies. I will add $7781 to line 43d - the aid amount reported as income. </p>
<p>Yes, it was even more unsettling that the accountant never looked at form 970. I had to show him a copy I printed. Like the FAFSA person I spoke to, both said scholarships are not reportable if they do not exceed the college costs. Neither understood that room and board is not a “qualified expense.”</p>
<p>On a positive note, my car was not in the driveway last Sat when a tree fell across the driveway before stopping at the front door. I was at the accountant’s because I did not feel comfortable with his decision to originally ignore the scholarship monies.</p>
<p>lwinrich, I had the same situation with my son. When I filed the fafsa a few weeks ago, I specifically recall that there was a question right under the AGI portion for him that asked of that income how much was scholarship – so I believe the taxable scholarship amount was backed out. Our collective EFC did not go up.</p>
<p>lwinrich - Do you pay any money towards your son’s education? For example, if you pay 4K for room and board, you can apply some of your son’s scholarship (if the scholarship doesn’t specify) towards that amount and you can declare your money as going toward tuition and get a full or partial AO credit. Of course, that would be extra scholarship income that your son will have to declare on his taxes.</p>
<p>Questions 43c and 43d ask about any income included in the student AGI that is from work study income (43c) or taxable scholarships/grants(43d). These amounts are deducted from the student’s AGI in the EFC formula so that they do not impact the EFC.</p>
<p>GTalum-I did pay appx 2K towards room and board. I paid another 1K for his books, but we added that 1K towards his qualified expenses (to reduce the amount of taxable scholarships). I was able to receive a $1500 AO credit (plus the 1,000 refund) for my daughter’s expenses.</p>
<p>Big mistake. Work your taxes both ways and see how it works for you as a family (taking into account both federal and state tax impacts). It is possible you may be better off as a family increasing his taxable scholarships so you can take the tax credit. For instance you are probably far better off taking the tax credit on the $1000 paid for books etc rather than using it to reduce your son’s taxable scholarships. You may be (depending on your tax liability) sacrificing a full $1000 tax credit to save your son $100 in taxes. Take the credit and give him some of it. That’s what we do.</p>
<p>As you are already somewhat familiar with IRS 970 take some more time to read it so you can get the most benefit. Particularly the section at the bottom of page 11 and top of page 12 where it shows these different examples of how the same scholarship money may be treated:
<p>Hi Swimcatsmon, we really need your help! As parents we are filling our usual joint 1040 and the fafsa for our two dependent (for IRS purposes) children both of whom get >50% support from us; for FAFSA purposes our D ( freshman undergraduate) is dependent on us, and our S (freshman graduate) is independent. Both children have no earned or unearned income except the following. Our D’s 1098-T shows billed tuition and qualified expenses are $29,644, and her scholarships and grants are $30,000. Our son’s 1098-T shows billed tuition and qualified expenses are $28,196, and his scholarships and grants are $1,500 (for some reason his federal loan which paid for his full tuition etc does not show on the 1099-T. Both children have had about $1500 in expenses for books (not mentioned in the 1098s).<br>
Even though we had entered all their 1098-T info on the taxact software I use to do our 1040, their scholarships and grants never got transferred automatically as our income, so I guess for us parents it is not a part of our AGI (or can it still be, and should we enter it manually somewhere?). Our main question is: What should be entered on my children’s FAFSA on the question "Grants and scholarship Aid reported in the AGI "? This same question needs to be answered for the Parent, and for the student. Should it be 0 for both section in FAFSAs for both children? Finally, do either of my children need to submit an income tax form because of these scholarships and grant?</p>
<p>Iwinrich, there is a place on the FAFSA to enter taxable portion of scholarships and grants reported to the IRS. Income from work is 8826, AGI is 9043, and taxes paid is line 55 if 1040 (line 35 if 1040A). Then further down in the student section, 7781 is entered for taxable portion of scholarships/grants reported to the IRS. This removes that amount from the EFC formula … the effect is that he is not penalized for the money.</p>
<p>Sadly I have seen several reports of people calling the help line and getting less than accurate and/or helpful responses.</p>
<p>My one experience of calling the FAFSA helpline was an exercise in frustration. Well meaning and very nice lady but totally unhelpful (as in really did not have a clue). I was actually in tears of frustration after several calls to the FAFSA help line and the social security administration. (which also mirrors my fun 6 months trying to sort out a huge IRS error - theirs not ours - with my daughter’s taxes - sensing a common theme here?)</p>
<p>—“for some reason his federal loan which paid for his full tuition etc does not show on the 1099-T.”—</p>
<p>Lifebubble, loans never show up on 1098-T. For tax purposes, the loan you mentioned can more than likely be claimed as qualified expenses YOU, the parent, paid for tuition (you said in your post that the loans went to tuition). Since your son is a dependent for tax purposes, you claim what will probably be a $2,000-2,500 credit on your taxes because of that loan.</p>
<p>My son has a full tuition scholarship, so the other scholarship monies primarily go to room and board. His tuition scholarship is specifically marked for tuition.</p>
<p>Re: the AO credit. I did claim the maximum amount-but for my daughter. </p>
<p>For future reference, are you allowed to claim more than the maximum if you are figuring out the tax credit for two kids?</p>
<p>The AOC is per student. You can claim it for as many students as you have. So if you have 2 students you can claim the full AOC for 2 students.</p>
<p>The lifetime learning credit and tuition and fees deductions are per return rather than per student.</p>
<p>
I don’t believe there is any limit on the number of students you can claim the AOC for. You can only claim it for the first 4 years for each student.</p>
<p>So the amounts you paid for books for your son you could have used to claim the AOC. A much better deal than your son using it to reduce the taxability of his scholarships.</p>