HELP PLEASE-Taxes on Excess Scholarship Income & American Opportunity Credit-Who reports what??

<p>My question has to do with excess scholarship income for my son, the taxes he owes, and whether I am eligible for a American Opportunity Credit on the amount he pays taxes on. I declare my son as a dependent on my 1040.</p>

<p>Using the figures from his school's 1098T and his qualified educational expenses of books, he has $12,000 of scholarship income plus $500 earned income from his part time jobs. So after subtracting the $6100 he can claim as a personal exemption, he is looking at $6482 in taxable income. Being in the 10% tax bracket, he'll owe $648 to the IRS and I'm guessing maybe $300 or more for state taxes. I thought I read in another post that to offset this tax, a parent can claim this taxable scholarship income which their student reports somehow for educational credit on their own 1040, but I'm not sure how??</p>

<p>To further clarify, some of his grants are designated tuition only (he was awarded a full tuition merit scholarship from his school), the remaining grants are not specifically designated for tuition (they can be used for tuition or any school related expense) so we applied them to room, board, and books.</p>

<p>Any advice from experienced parents would be so appreciated.</p>

<p>Does your son has any qualified educational expenses that are not covered by the tax-free scholarship? If yes, you could claim AOTC on that.</p>

<p>For example, if your son has $10,000 qualified expenses and $14,000 scholarship, you have declare the excess scholarship $4,000 as taxable on your son’s tax return, and you could not claim AOTC as you don’t have any qualified expenses ($10,000 expenses all covered by $10,000 tax-free scholarship)</p>

<p>However, if you declare $8,000 of scholarship as taxable on your son’s tax return, you could claim AOTC as you have $4,000 qualified expenses ($10,000 expenses partially covered by $6,000 tax-free scholarship)</p>

<p>See “Coordination with Pell grants and other scholarships” on Pub 970 Chapter 2 <a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service;

<p>You may claim the AOC only for qualified expenses paid out of pocket–tuition, fees, books. If tuition is covered, that doesn’t leave you much you could claim. Room and Board are not qualified expenses for AOC credit.</p>

<p>Are you saying that he received $12000 in addition to his full tuition, or that the $12000 included tuition?</p>

<p>If it is the first, and he must apply all of the $12000 to QEE other than tuition, he’s going to pay taxes on it as you outlined on most of it (room, board, overage). If the $12000 included tuition, then exclude the tuition and other QEEs from the $12000, and then he gets the $6100 tax exclusion so will pay very little.</p>

<p>Be sure to check your state tax requirements. Some have different exclusions than feds and scholarships might not be taxable.</p>

<p>Thank you for the replies. I have read the IRS publication but still am confused as to 4kidsdad’s question,
“Does your son has any qualified educational expenses that are not covered by the tax-free scholarship? If yes, you could claim AOTC on that.”</p>

<p>Here is the breakdown in figures:</p>

<p>$59,221 Box 5-1098T (Scholarships/grants received)
44,921 Box 2-1098T (Amount tuition/fees billed)</p>

<h2> 2240 books & other qualified expenses</h2>

<p>Resulting in $12,060 excess scholarship income</p>

<p>Further breakdown of Box 5 is
$41,832 merit grant from school designated for tuition only;
$4978 from NYS TAP designated for tuition only;
$7911 need based federal grant;
$4500 one time only merit scholarship from outside grantor
all totaling $59,221.</p>

<p>Not included anywhere but paid by scholarship is room and board of $11,685. My understanding is this can’t be used anywhere.</p>

<p>From what I’ve read here on CC, I see that some parents deliberately have their student declare even more than the excess scholarship income in order to qualify for the AOTCredit. In our case, I’m not sure whether that is possible or would even help. As it stands now, without doing any of that manipulating, my son will have $6482 in taxable income and wind up owing 10% of that to the IRS and maybe half that to our state.</p>

<p>It’s not the end of the world certainly as $1000 or so is a very small price to pay for a great education. I merely don’t want him (or I) to lose out on any tax advantages if they’re out there. For a non tax person who most of us are, this is extremely confusing!!</p>

<p>Thanks twoinanddone. I was composing my post above and didn’t see yours until afterward. Yes, the $12,000 is above and beyond the grants he received for tuition. As I detailed above, nearly all of that $12,000 was used for room and board.</p>

<p>I think you could put $12,060 as taxable scholarship income on your son’s tax return and you couldn’t claim AOTC;</p>

<p>or</p>

<p>put $16,060 as taxable scholarship income on your son’s tax return and you could claim $2500 AOTC on your tax return.</p>

<p>By the way, reporting taxable scholarship income is more complicated for the tax year 2013. Please see latest update on this thread: <a href=“Scholarship as Investment Income? - Financial Aid and Scholarships - College Confidential Forums”>http://talk.collegeconfidential.com/financial-aid-scholarships/1473041-scholarship-as-investment-income.html&lt;/a&gt;&lt;/p&gt;

<p>I disagree, 4kidsdad. She has to actually have paid the $4000 to some Qee. Her son just can’t pay taxes on money that was never in play. If he’d paid $4000 to R&B, then he could “move” the outside grant money to taxable and claim the $4000 ‘actually paid to tuition’, but in the list she made, he did not pay OOP the $4000.</p>

<p>I think the OP is correct that $1000 in taxes is well worth it for those great scholarships.</p>

<p>

See the examples on “Coordination with Pell grants and other scholarships” of IRS Pub 970 Chapter 2.</p>

<p>OP, did you actually pay any expenses out of pocket for tuition, fees, books/supplies or R&B? You can ‘shift’ scholarship/grant money to non-QEE such as R&B to take the AOC but you have to have actually paid some expenses to be able to ‘shift’ it to them.</p>

<p>Tuition was covered entirely by grants. Beyond that, son had $13,925 additional expenses ($2,240 QEE in books; $11,685 non QEE in R & B) and received $12,411 ($7,911 Pell & $4,500 outside scholarship, both of which may be used for general educational expenses such as room & board). </p>

<p>You didn’t directly answer the question I posed. Did you write a check for or otherwise pay, including with loans, any expenses and if so for what? I didn’t crunch the numbers you gave but from a rough look, it looks like the answer is no.</p>

<p>Is this your son’s first year in college? The numbers look high for one semester. Did the school bill everything and credit all scholarships to his bill in December for the spring 2014 semester?</p>

<p>Oh sorry. No out of pocket expenses other than books & laptop computer totaling $2240. His R & B were paid by grants which were issued to the school. </p>

<p>This is son’s second year in school. The school included on current 2013 1098T: tuition/fees for Spring 2013 (freshman year) & Fall 2013 (this sophomore year) so that seems correct.
However, they included $2000 (outside scholarship received in Jan. 2013 but meant for his 2012-2013 freshman year; & another $2500 outside scholarship check which the school received in Oct. 2013 (this too was intended for his entire academic (sophomore )year (2013-2014). </p>

<p>I’ve wondered if there is any wiggle room in these outside scholarships amounting to $4500 this tax year but really meant for two academic years and spanning three calendar years. I hope I’m articulating this clearly. I really appreciate the help on this. </p>

<p>It doesn’t matter when the outside scholarships were meant for, it matters when they were applied to a bill, whether directly or because the scholarship was sent to your son and he then wrote a check to the school in that amount.</p>

<p>1098Ts are not always correct. You should try to match up the expenses and scholarships/grants from source records like bills/online account statements and records of payment to compare to the 1098T.</p>

<p>The book and supply costs are already QEE, so they don’t give you non-QEE expenses to shift to, and it seems that expense was covered by scholarship/grant amounts. While he may have bought them out of pocket, did he get a refund of some scholarship/grant money or otherwise get reimbursed for the amount he paid for books and supplies?</p>

<p>It is true. We pretty much have a wash this year with scholarships or grants coming in and expenses of both QEE & nonQEE. Nothing ultimately resulting in surplus but nothing technically paid out of pocket. </p>

<p>My older child had an outside scholarship and the school was willing to split it in half and apply the check to two separate semesters (fall and the following spring). It required me calling them to ask and they were willing. I wonder if it’s too late to do the same for my son? It would require the school to adjust his account internally but also issue a new 1098T to us and the IRS.</p>

<p>It won’t change that you didn’t PAY $4000 in QEE during 2013, even if the school splits the scholarships. You actually have to pay the money, and with funds that don’t already have tax benefits (like 529 withdrawals) in order to claim a tax credit.</p>

<p>If you get free window for your home, you can’t then take the credit for energy improvements. You are getting the credit because you paid something, thus getting the credit.</p>

<p>I’m not a tax professional, just a parent who has become very familiar with these education things and it seems to me that, as you said, you should be happy your son is getting a great education for whatever in taxes. I haven’t crunched the numbers to the dollar but it seems you don’t have any expenses for the AOC.</p>

<p>Do check your state though, if it has an income tax, and the state your son is in college, if different, for their requirements. Some states treat taxable scholarships/grants as unearned income which can affect the standard deduction they can take for state taxes.</p>