We are in receipt of form 1098-T from the college our Son attends. Box 5 (Scholarships and Grants) is around 6,000.00 more than box 2(Qualified Tuition Expenses) Reverse side other than these two amounts there is a personal payment amount shown too. Is the difference of 6000.00 taxable income for my Son? Please help.
You can add the cost of required books and supplies to the amount of QEE shown in box 2. Yes, it’s taxable income. It’s earned income for the purposes of having to file a return and for his standard deduction. The requirement for having to file is earned income + $350 unless there was any self-employment income in 2014. His standard deduction will be the same, earned income +$350 with a max of $6200. So if he had other income he may have to file a return and perhaps owe some tax. For the purpose of the kiddie tax, form 8615, taxable scholarships/grants are unearned income. Look at chapter 1 of IRS Pub 970 about taxable scholarships/grants. Also look at chapter 2 to see if you may still be able to take the AOTC on your return by having him include more taxable scholarships/grants in his income. If any amounts were paid with 529 or Coverdell funds look at chapters 8 and 7 to read about coordination of those distributions.
You should verify the 1098T amounts with your records of bills and his online account and your records of payment to make sure the 1098T reflects what was actually credited to his account in 2014 and what was actually paid in 2014.
Thank you Annoyingdad for your reply. He is self employed. So as I understand his income from self employment plus the difference of $6137 from the form 1098-T (which is for room and board) will be earned income on his tax return and the entire amount is taxable.
Scholarship money that is used for room and board is taxed as unearned income at your rate (kiddie tax) on form 8615 as noted by annoy dad. If you use turbo tax you’ll be prompted about this…assume other programs will also
Read IRS Publication 970.
If the excess scholarships are less than $6200, you don’t have to pay taxes on them.
Thanks scmom12, Madison85 and Lilliana330. Excess scholarships are under $6200. but my son has interest income of 800. so I believe the excess of $6200. will be taxable on kiddie rate. Am I correct here to take these two incomes as unearned income? Does the standard deduction of $6200. applies towards unearned income or the deduction is only toward earned income (w2, self employment etc.,)
See here, page 4, Filing Requirements for Dependents:
http://www.irs.gov/pub/irs-pdf/p501.pdf
Remember, for the purpose of determining filing requirements, taxable scholarships and grants are counted as earned income. For kiddie tax purposes, they count as unearned income.
Thanks MiddKid86. Now I am confused . Is the taxable portion of grants and scholarships ($6137) and interest income
($809) which totals to $6946 subject to kiddie tax irrespective of parental income and he has to file form 8615?
Parents’ income is not a factor in determining whether or not the kiddie tax (IRS form 8615) comes into play. It’s a two-step process: first, figure out if the child must file a tax return (see pg. 4 of pub. 501, linked above). It sounds like your son does need to file, based on the information you have provided. Second, if the child does need to file, figure out if the kiddie tax applies. See “Who Must File” on the first page of the form 8615 instructions, here:
http://www.irs.gov/pub/irs-pdf/i8615.pdf
Remember, in step 1 taxable scholarships and grants are treated as earned income, but in step 2 they are treated as unearned income.
@MiddKid86 He has to file a tax return. My concern is whether he is required to file form 8615. Confusion is the unearned income part. From the rest of the questions he has to file 8615. The unearned income is under 2000 if only the interest is taken which is 809 and if the scholarships added it is over 2000 and therefore have to file 8615. If 8615 is required what would be the tax rate.
For form 8615, the taxable scholarships are unearned income, so it sounds like he will need to file form 8615. The first $1,000 is taxed at 0%, earned income greater than $1,000 and unearned income between $1,000 and $2,000 is taxed at the child’s rate, and unearned income above $2,000 is generally taxed at the parents’ highest marginal rate.
@MiddKid86 Thank you. Your information was very helpful.
Be careful with the 1098T. The reported numbers are often (usually) incorrect due to exceedingly lax regulations imposed by the IRS. I suggest you compare the totals for each box against what you actually know you paid (or what was paid on your behalf) via the student accounts/bursar website.
I see very few that are completely accurate.