I received a full ride (tuition/room/board/fees) scholarship for my undergrad, was claimed as a dependent by my parents, and owed somewhere between $500-$1000 in taxes each year. This was paid out of my scholarship money, since my undergrad university (Pitt if you are wondering) allowed scholarship money up to the full cost of attendance (which is tuition, room, board, fees, and book/travel/miscellaneous allowance). Scholarship money that was not paid to the university was refunded to the student, and so living in a cheaper housing situation than the standard double room allotted by my scholarship, and having a few small scholarships on top of the full ride gave me some money left over for taxes and/or burritos.
I don’t. Without the full ride a student might not otherwise be able to go to college. But to plan for the tax expense will be important.
If a student receives 1099 income (or any other self-employment income that will eventually be reported on Schedule SE) the projected taxes on that income should be pulled out and slapped into a savings account right away. If your kid hasn’t a clue about what the total self-employment, federal, and state taxes are likely to come to, then tell your kid to save 1/3 of the self-employment income.
Some of these students are receiving full rides…and for some that is tens of thousands of dollars.
Which would be better…paying the full tuition costs…or putting aside some of the summer earnings to pay the tax?
Also, if anyone is eligible for the AOTC, that would be about $2500 for a very low earner…and if the parent receives that, perhaps that could be put aside for taxes for the following year.
The amount of taxes paid is usually FAR less than the amount of scholarship money received…a lot less.
Yeah, no one is saying (I don’t think) that it’s not worth it! We’re so, so thankful for both the need-based aid and the outside scholarship. We’ve paid around $3000 each year for our son to attend MIT. This year, it might be as high as $7000 because of his income, but he is prepared to help pay that from his income.
What figure do they use when calculating the tuition + books amount? Is it the school-provided general number or what the student actually paid in tuition + books?
We are talking about a full ride here, so tuition(and everything else) is 100% covered. How is it possible to take a tax credit?
And I don’t think anyone has even remotely complained about paying the taxes, including me in my OP. The question is how are they paid?
The way I understand it the student would have to include some of the scholarship that covers tuition (that would normally not be taxable) with the rest of the taxable scholarship income. Normally you can use up to $4,000 of qualified education expenses towards the AOTC. But there are upper income limits of the parents to qualify for the credit and if income is low enough that parents owe no tax then up to $1,000 of the credit is refundable.
The student will end up with a higher tax amount, but it might be able to be offset by the parents getting the credit. Just depends and you would have to see both ways which would be more beneficial.
The school should send the student an award letter I would think that specifies the amounts being paid or it will show the billable amounts (tuition, room and board) on the student account. You can get the numbers from there and print out the tuition statement every semester. I would keep receipts for the books.
You use the actual tuition and fees paid to the school (an easy number to come up with since it will be on your statement) and the books and supplies you actually purchase and that were required by the prof - you need to keep track. Supplies can vary, but one of my daughters needed a lab apron and goggles, the other a yoga mat and some special pillow. You cannot include ‘typical’ school supplies like paper and pens. Health insurance, even if required by the university, is not a qualified expense and if you use a grant to pay for it, that grant money is taxed.
@mommdc I think this is the part of the wording in the pub that most people overlook:
So for example scholarships are 60k, QEE is 45k and nonqualified expenses are 15k. 15k is taxable and all QEE is covered. According to the above you can’t opt to make 19k taxable and take the AOC…19k of the funds did not go to nonqualified expenses. You have to have paid something, somewhere, whether qualified or nonqualified for this to work.
Ah! I’ve just found nooks and crannies in my student account that I’ve never seen before! I’ll ask my mom how she pays my taxes. I wonder exactly much is getting taxed considering tuition is usually less than $300. :-/
^^ tuition is not taxed. It is the scholarships and grants that exceed the QEE that are taxed. It doesn’t matter if tuition is $300 or $30k, not taxed. Scholarships to pay that tuition not taxed. The IRS is only interested in the ‘free lunch’ (scholarship paid room and board)
@ProudMomx3, you raise a good point, I have also wondered how you can claim an education credit without actually paying something.
@twoinanddone I’m confused. If my tuition and books is less than the scholarships and grants I’m getting, wouldn’t that make the excess taxable?
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My son got slammed with taxes this year. Between his MIT scholarship (need-based aid) that goes above tuition, his corporate yearly National Merit Scholarship, and his 4 jobs, three of which did not take out taxes-and his highest paying job was the dreaded 1099 Misc-he made around 21-22K. Guess what? He owed close to $4000 in taxes between federal and state. Did he have that?
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MIT meets need and your family contribution was less than 5k, is that right?
Your son earned $21k+…what did he spend that on? The way I look at it, between the MIT FA, the parent contribution, and your son’s income, there’s about $85,000…just for him? Maybe I’m misunderstanding.
I talked to someone helpful and got these links:
(1) 2014 Federal Student Aid conference:
http://fsaconferences.ed.gov/pastconferences.html
(2) Click on “Click here for Session Presentations”
(3) Under 2014 Sessions:
http://fsaconferences.ed.gov/2014sessions.html
Search for Session “43” which was co-sponsored by IRS personnel and which discusses:
There is a PPt presentation that contains this language:
The next slide clarifies:
In other words, if you pay for AOTC-eligible expenses out of “taxable scholarships” – it certainly looks like you can claim the AOTC. Great for those receiving scholarships.
Whew, that was a great deal of typing! Good luck, everyone.
Nonqualified expenses are funds spent on things that are not qualified. Where does it say that nonqualified expenses in the context of the AOTC are limited to items included in COA?
Car expenses (purchase/maintenance, gas, repairs, new tires, oil changes), clothes, entertainment, share of family vacations, spring break trip, NetFlix, cell phone purchase and monthly bill, health insurance, life insurance, dental work, glasses and contact lenses, haircuts, makeup, jewelry, hot air balloon ride, orthodontia sorority or fraternity dues, and on and on - all of these and more are nonqualified expenses.
Techies can earn big bucks for part time jobs. This student should spend some $$ to consult a tax professional.
“I’ll ask my mom how she pays my taxes. I wonder exactly much is getting taxed considering tuition is usually less than $300”
“I’m confused. If my tuition and books is less than the scholarships and grants I’m getting, wouldn’t that make the excess taxable?”
Niquii77, you said your tuition was usually less than $300. You said nothing about scholarships. Yes, if your scholarships are more than QEE, you have to declare them and pay taxes on the excess. You would get a $6200 personal exemption for all your earnings and excess scholarships.