I know this has been covered many times but I’m having a hard time understanding all of the info. D received almost full aid to ND. Full Pell and large Indiana grant as well. Can somebody tell me tax consequences of this? Family Contrib is about 1K. But full tuition is met and most of room and board through aid from ND and a 6K outside scholarship. Thank you!
You add up all the Qualified education expenses (required fees, tuition, books, supplies) and any scholarship money used for that is excluded from taxes. Any scholarship money used to pay non-qualified expenses (room, board, travel, insurance, incidentals) is considered taxable and must be reported as unearned income on child’s return. Any amount over $2000 will be taxed at the ‘kiddie tax’ (parent’s) rate.
Say your child had $50k in scholarships. $35k is QEE, so not taxed. $15k was for room and board. She’d report that $15k. Family contribution is not taxed, nor is any money from loans used to pay R&B
thanks @twoinanddone. I’m sorry for being so ignorant about this, so she is looking at R&B of approx 12-13K. This would be taxed at our rate? It’s a low rate I’m sure but definitely money we don’t have. Let’s say our rate is 10 percent. She would owe approx $1300 in taxes? If our rate is 20% she would owe approx $2600 in taxes? Thanks!
My Son included this amount in line 7 of 1040 and attached form 8615. Can someone who knows tax requirements please check whether this is right. Thanks.
The amount above QEE is earned income for the purpose of the standard deduction and for filing requirements. It is unearned income for the purpose of the kiddie tax(form 8615). We should be more clear about that. The student does get their standard deduction which is earned income(including taxable scholarships/grants) + $350 with a max of $6300 for tax year 2015.
Renu2020, he should have written SCH xxxx to the left of the amount box for line 7 where xxxx is the amount of the taxable scholarships. Otherwise it sounds correct, the amount should be include in the amount box for line 7.
nd4444, it’s not quite that simple as it will depend on her own income. As a dependent, she’ll get a standard deduction of $6200 ($6300 for 2015?), so if she made no income of her own and had $12000 in taxable scholarships, she’d put $12000 SCH (off to the side of line 7 on the 1040 Renu), then get to subtract $6200, and pay at the 10-20% rate.
I did this for my kids this year. One child’s was under $2000, so hers didn’t even show up on her return. The other’s was $6150, just under the $6200 limit, so the tax software (TaxAct) did complete the form 8615 and showed no tax due. I was pretty happy that the tax software did the math for us, completed the right forms. I did have a little bit of trouble figuring out where to put all the information (I also took the ATOC) but after a few tries it worked.
Keep good records of what scholarships were paid in the tax year (not the school year if you didn’t pay spring tuition in advance). Keep records for QEE and room and board. The tax software will ask how much you paid for R&B, and how much was paid by a scholarship.
Thank you so much @annoyingdad. He did write SCH so everything seems good. I am concerned as the taxes are not processed yet as he could not use the DRT for fafsa and thought may be he included the amount in the wrong line. Thanks once again.
I should have mentioned for the OP that the taxable scholarship amount could be treated differently for state income tax if your state has one. My state treats it as unearned income for the standard deduction and filing requirements so my son actually paid more for state than federal. But that also was before 2013 when the federal kiddie tax change kicked in.
When you all talk about “scholarships” here does that mean just outside scholarships? Is an institutional grant (whether they call it a “scholarship” or grant, because I’ve seen it both ways) the same as a scholarship for the purposes you all are discussing?
Yes, institutional grants and scholarships are treated the same as outside scholarships for tax purposes.
Thank you!