Hi. I saw on a recent thread, which I now can’t find, that scholarships covering tuition, required fees, and books are not taxable, but scholarships covering room/board, travel, personal expenses etc. are taxable.
So, therefore, a “full ride” doesn’t mean “free”. Correct?
How is this handled on the 1040? Report all scholarship money received, then is there a worksheet to break out taxable from non-taxable? What about outside scholarships - are they taxable if they push the total scholarship aid above the total for tuition, fees, books?
So the student files their own return for any taxable scholarship aid, or the parents include it as income on their return, or what decides whom the tax applies to? I guess if the student is independent it’s the former case, and if they’re dependent it’s the latter case?
From my limited understanding you calculate the amount of taxablescholarships and grants (everything received that tax year that’s above tuition, required fees, books) and include them in the student’s 1040 A line 1. You write “SCH” and the amount on the left side of line 1.
My D also has W2 income so I believe I add the taxable scholarships to the work income.
Then since my D is claimed by us as our dependent she gets a $6,300 standard deduction, but no personal exemption.
I think unearned income over $2,000 then is subject to the kiddie tax. There is a form 8615 to fill out for that to figure the tax.
Sorry it’s too late to edit post #3. Normally a student’s earned income would be reported on a 1040EZ, but I guess if form 8615 has to be filed then you have to use 1040A or 1040. So it’s line 7 on 1040A where the scholarship income (taxable part) would go (not line 1 on 1040EZ).
Yes, the student has to file separately with the scholarship $$ but it is taxed at the parents unearned income rate. I am glad we were prepared for it bc it was a 1/3 of the non-tuition scholarship amt. If the scholarship $$ is renewable, depending on the amt you owe, you might need to set up quarterly payments for next yr.
The good news is the free versions of TurboTax, TaxAct, etc. do all the calculations for you. They have a question like ‘did you have tuition expenses’ and once you (the student) says yes, a series of questions are asked, like how much did you spend on books and required supplies, how much on tuition, how much in scholarships, etc. You are asked if you received a 1098-T, if it is correct, and you can enter other scholarship money. The 1098T in for both my daughters included spring tuition charges but not scholarships, I wanted to keep everything in the same tax year so deducted the spring tuition from the 1098T. I think it did generate an 1040EZ for my kids but it might have been a 1040A. They just submitted what the program generated.
There is (literally) No Free Lunch with the IRS, and that includes the school meal plan. Paying the tax on the scholarship for room and board is still better than paying the whole thing yourself.
Is that $2,100 in addition to the $6,300 standard deduction?
So if a student got a scholarship $8k to be used for room and board. The student would only owe taxes at their rate for the remaining $1700?
The magical program figures out the tax. My daughter came in last year at $6100, so it was all within the exemption, and she didn’t have to pay taxes on the amount over $2000 because she was still under the standard deduction. Is that what you are asking, if you have to pay the kiddie tax on the amount over $2000 but under $6300? No, you don’t.
Still a good thing to get scholarships, even if you have to pay taxes.
“Still a good thing to get scholarships, even if you have to pay taxes.”
Oh, absolutely, it’s just that an estimate of the tax implication has to be figured into the COA, especially when comparing offers. Similarly I think it’s wise to have the information and not get blindsided the following spring at tax time.
@3scoutsmom, yes that’s what I’m wondering as well.
My D has work income of about $3k and taxable scholarship income of $5k. That’s $8k. So I am assuming that none of the unearned income of $1,700 that exceeds the standard deduction is subject to the kiddie tax because it’s below the $2,100 amount? I hope that’s true.
But I thought that the taxable scholarship income is considered earned income for the purpose of the standard deduction and unearned income for the implications of the kiddie tax and form 8615?
Why do you have to report the taxable scholarships as part of earned income on line 7 of 1040A then and not part of unearned income?
@annoyingdad, didn’t you mention this rule before?
@Madison85 thanks for the explanation! Taxes are such a hard thing for me to wrap my head around. I really think that Kiddie tax is so unfair. I expect dd will have more scholarship money the first semester of freshman year, I wonder if it would make sense to ask if some of it could be differed until second semester to move it into the next tax year?
In the following example, the student has $3,000 of earned income and $5,000 of scholarship income.
It is important to note that the scholarship income of $5,000 is considered earned income when calculating the standard deduction but unearned income when preparing Form 8615.
Form 1040:
Income from Wages $3,000
Income from Scholarship $5,000
AGI $8,000
Less: Standard Deduction ($6,300)
Taxable Income $1,700
Form 8615:
Unearned Income $5,000
Less: Allowed Unearned Income ($2,100)
Net Unearned Income $2,900
Taxable Income from Form 1040 $1,700
Lesser of Net Unearned Income or Taxable Income $1,700
**Conclusion: Taxable Income of $1,700 consists of $1,700 unearned income taxed at parents’ rate.