@twoinanddone I think you meant to say, "any scholarship amount that is NOT QEE counts as earned income. The rest is on the nose.
For a dependent child who lives with you (other than temporary absence for college), it doesnāt matter how much they earned, but rather how much of the earnings they spent on their own support as far as I know.
Hi all,
I just read the NY times article, and thank you for this thread. Iām trying to get on top of this topic as D19 will be attending a school that meets 100% need, which after the loan, and the amount my D is contributing from part time work, comes to a payment from us parents of about $2800. Yes, I realize this is a very good problem to have, but I am concerned about being prepared for taxes. D19 was just awarded a $1500 scholarship, renewable for all years of college. D19 works part time, and is a dependent. Letās put her 2019 income at $6000. The amount of non-tuition scholarship is $7465 (towards Room & Board). Her income will be 6000+7465= 13465. If I understand it correctly, sheāll receive the standard deduction of 12K. Does this mean that the 13465 income -12000 standard deduction = 1465 is what is taxable? Or is the 13465 the taxable amount? Iām confused how @BelknapPoint #3 post with the tax rates at different levels works with a standard deduction. I know this is basic information I should understand. I want to be sure weāre prepared for the tax that comes with these very generous scholarships, as we canāt easily absorb a large payment come 4/15/2020. We do have some 529 $, but that canāt be used for taxes.
Support for child doesnāt just cover tuition, also food/housing during breaks, and health insurance.
IRS website has a support test worksheet.
The need based aid the student receives, also scholarships and grants, is not student provided support. But work earnings and student loan proceeds are.
You might qualify for AOTC on the amount you or your daughter pay towards tuition/fees/books, and a dependent credit of $500.
You can estimate the tax amount due and save that up during the year.
@mommdc I am trying to figure out an estimated tax due, so that we can make the adjustment in withholding now. I just donāt understand if weāre taxed on her part time job/work study job income combined with non tuition scholarship as a total figure, or less due to standard deduction for $12K. And yes, AOTC might kick in, just to add another moving part into the mix. Reading the NY Times article - it seemed that the non tuition scholarship amount ( for us $7465) was going to be taxed at 37%, and Iāve read this thread completely 3 times over, and Iām not clear whatās taxable when a standard deduction is considered. We definitely support D19, sheās a dependent, no question there. I can fiddle with turbo tax, but I find like to have a basic understanding.
@DoingResearch just to be clear the student is taxed not you. Also most scholarships are paid out by the semester and since thereās only one semester in the first tax year your student is in college theyāll likely be fine for taxes the first year. The next tax year will have two semesters and that the one to be prepard for!
Iām not reading the NY Times article because it wants me to log in or create a free account. Butā¦ your child will only be taxed at the 37% rate on any part of the income subject to the kiddie tax that exceeds $12,750.
Itās all ātaxable,ā but the $12k deduction means that tax will only be computed on $1,465. Use 2018 tax forms and instructions, available at the IRS website (https://apps.irs.gov/app/picklist/list/formsPublications.html), and 2019 tax rates (https://www.forbes.com/sites/kellyphillipserb/2018/11/15/irs-announces-2019-tax-rates-standard-deduction-amounts-and-more/#6985d7062081) to do a hypothetical 2019 run-through for your daughter. Make sure you look at IRS form 8615 (the kiddie tax) and its instructions to see if it applies, and if it does use it in your 2019 estimate.
The first year in college, especially with taxable scholarships and trying to utilize tax credits, can be very confusing. The second year and subsequent years are much easier. You are very smart to be thinking about this now instead of trying to hash it all out next spring.
Many schools bill for and apply scholarships to the spring semester before the end of the calendar year. Be prepared for spring semester scholarships to count as income to the student for the previous tax year.
@BelknapPoint Iāll take your word for it, you have far more exerience with this stuff that I do but this is how it worked out for two of my kids at two different colleges so I guess itās something to check into?
Absolutely; once a school has been picked, ask the billing office what the timing is for billing the different semesters and how/when credits are applied.
Both of my kids had scholarships and they were applied in Jan/Feb, even if the bill for the spring semester was issued in December. I kept all bills and credits in the same tax year. The schools did not post the merit scholarships until Jan. They were quick to post the charges but not so good about posting the credits. My kid who started back to school around Jan 6-10th range never had her merit scholarships, athletic scholarship, or state grants posted until after Jan 2.
@DoinResearch If she ends up with $1400 in income, the tax software like Turbotax or TaxAct with do the calculations for you on that.
I agree that in April 2020 she probably wonāt owe anything since her total income will be about $6000 + (1/2 of $7500)=$9500 and the standard deduction will cover that.
@BelknapPoint Thank you so much! Actually, S18 will be a sophomore, and D19 a freshman, and doing taxes via Turbo tax this year was very ātaxingā (much of it I think was a software issue, and the AOTC credit didnāt display in the tally until the very end when I ran a check/audit, it was as if the check/audit calculated the credit). Son got good aid, but it didnāt extend beyond the cost of tuition so I really only focused on AOTC and made sure that was applied. The size of D19ās FA package adds a new layer. And you answered my other lingering question, that it is a full year in 2019 because we pay the bill Dec. 2019 for 2020, which for AOTC purposes is good. So grateful for this forum.
@twoinanddone D19ās school has the spring semester due 12/18, so i am hoping grants are credited, because my head might explode otherwise. Iād rather prepare for a full year 2019 in setting up withholding so weāre not surprised. I at least think I have the basics down so when I do some estimates via tax software, I feel more prepared in answering the questions.
@DoinResearch In my experience, the grants are credited on the first day of class of the semester. You should call the college FA office first thing Monday to ask. Or check the collegeās FA web page to see if that is addressed.
Please donāt hate on me for bringing this up, but paying for a full academic year in one tax year can deprive you (or the student) of taking five years of education tax credits. This is because a normal course of four academic years will take place over parts of five tax years. Since the tax credits depend on when the expenses were actually paid and are not based on what calendar year the academic period occurred, one way to still be eligible for five years of education tax credits is to wait until January of the senior year to pay the senior spring semester expenses.
This will of course vary by school, and in contrast my experience has been that the school will bill for expenses and credit grants and scholarships in early December for a spring semester that begins in mid January.
^^As I said, daughterās school was the opposite and I know that the Florida state grants/BF would never be credited before the first day of the semester (BF wasnāt applied until after the drop/add period as the amount wasnāt set, so could be 6 weeks after the semester started). I donāt think federal aid can be applied any sooner than 10 days before the semester starts, so could be in late Dec but most often is going to be in early Jan (Pell grants, SEOG, and loans -but those donāt matter for taxes).
So you could have the worst of both worlds - some grants in Dec, some in Jan. Iām grateful Dās were always in Jan and I kept all the billing in the right tax year.
Even though we had that 5th tax year, she got not tax benefit. Iād used the 4 years of AOTC and all she would have qualified for was the LLC, but she didnāt have any qualifying payments since tuition was covered by scholarships.
Look, Iām not disputing that anyone had a different experience. Different schools will bill at different times, and the credits for different types of aid will post at different times. My experience is with school X and institutional aid. School Y and federal or state aid may very well do things differently. I get that.
To parents: find out what your kidās school will do with the billing and type of aid that your kid is receiving.