So if a student has a taxable scholarship of $16,800 can they take the standard deduction of $12,000?
Leaving a taxable income of $4,800 and then $2,100 of that not taxed? and then $2,550 is taxed at 10% ($255) and the remaining $150 is taxed at 24% ($36) for a total tax bill of $291
Or do students not get to take the standard deduction?
16,800 - 2100 = 14,700
14,700 - 2,550 = 12,150 (tax $255)
12,150 - 6,600 = 5,550 (tax $1,584)
5550 remaining at 37%? (tax $ 2053.50)
total tax $3892.50
I don’t know. I assumed that when the exemptions went away, the new standard deduction for single filers would apply to dependent students.
I surely hope that students on need based or merit or athletic full rides don’t end up paying 1/4 to 1/3 of the scholarship covering non qualified education expenses in taxes.
For low income students especially, that would be much higher than their parents’ marginal tax rate.
I think the only benefit to my family is that the student’s standard deduction is raised to $12000. Losing the personal exemptions from the parent’s return hurts a lot.
OP, I think you have it calculated correctly that the $12k will be excluded, but the $2100 is not considered unearned income at the kiddie tax rate, it’s earned income taxed at the student’s rate. It’s taxed and it could be at the 10% rate or a lot higher if the kiddie has other earned income. Looks like the next $2250 (unearned) is at the 10% rate, and then the rest of the unearned is at the parent’s rate under the kiddie tax.
(I use one of the tax programs and all of it is figured for my daughter. All of her income was at the lowest 10% rate; no kiddie tax penalty for her)
But isn’t the question how the first $2100 of unearned income is taxed (not necessarily scholarship money)? I thought it was taxed as earned income, and then any amounts over that are taxed at the kiddie tax (parent) rate. The quote in the original post says that the new tax bill would tax the next $2250 (after the first $2100) at a flat 10% rate.
The treatment of taxable scholarships has drastically changed in the new tax code. The student who receives scholarships or need based aid for room and board will not be able to offset those “unearned income” amounts with their standard deduction according to @Madison85. From the new tax proposal thread, post #2839=" it’s unearned income over $2100 that is taxed (not unearned income over the standard deduction) at trust rates."
They will now be taxed at the graduated trust rates. For example, a student on financial aid who receives room and board grant for ~ $16K will be taxed nearly $4K as in 3scoutsmom’s second calculation in her first post. Madison writes in post 2835 : “In case anyone cares (people with kids who have taxable scholarships) you reach the top marginal trust tax rate of 37% at only $12501! The tax liability can be very difficult to pay when it’s for a full ride EFC 0 student at a pricey private school. *Though, it looks like a dependent would get the full $12000 ‘Single’ filing status standard deduction (still looking for information to the contrary).” *Madison85 then posts the update on #2939 that the dependent will NOT get the standard deduction for the unearned income!
In addition, it appears that for most, the loss of the dependent’s exemption will now increase the parental income perhaps leading to less financial aid.
If anyone has a different interpretation, please post it here! Thanks!
Thank you HRSMom, I realize that this tax is JUST on the amount of grants or scholarship that cover room and board or the “unearned income” but for students who attend a “meets full need” college and have a low EFC, this new tax is a big issue.
It is going to be a mess. I’m happy that my child who pays taxes on scholarships will only pay for one term (spring '18) under the new tax scheme, and only on about $3000).
It is going to make a big difference if schools that give scholarships for R&B charge $11k or $16k or $18k
fido, the tax code does not work in a way that allows you to easily see this.
The kiddie tax has been tweaked
The way children’s unearned income (read: investment gains) are taxed has changed. Previously, kids paid taxes at the parents’ rate on any unearned income over $2,100. The new rules change that, applying the same capital gains rates that estates pay to children’s unearned income. Thus, children pay 0% on unearned income up to $2,600; 15% on unearned income from $2,600 to $12,700; and 20% on income above $12,700.
Am I doing this calculation correctly then? 15K for room and board grant-2600 at 0$, $12,400 at 15% would be $1860 total tax?
This doesn’t match up with what I saw just googling for trust tables when I first read about this. This is the “old” trust structure so these figures no longer apply, right? The calculation above is the correct one?
For Tax Years Beginning in 2017
1st: If Taxable Income is 2nd: Tax equals this amount 3rd: Plus this rate of excess taxable income
$ - $ -0- 15.0%
2,550. 382.50 25.0
6,000. 1,245.00 28.0
9,150. 2,127.00 33.0
12,500. 3,232.50 39.6 *This is changed for 2018 to 37%?
If we had to use this table, the tax would be a lot more. When does the 37% kick in that I keep hearing about in the new structure? There is no higher percentage now than that 20% on any amount over $12,700?
Just FYI, for others in this same position, remember that any Health Insurance Grants or Health Center Fees are also part of the taxable amount of unearned income addition to the room and board charges.
@HRSMom thanks for the link, so where is the 37% comming from that people are talking about?
Actually this is much simpler than the current system.
If this is right a full year room and board scholarship of $16,800 would be
0 - 2600: no tax
2600 - 12700: 10100 @ 15%: tax is 1515
12700 - 16800: 4100 @ 20%: tax is 820
Total tax:; 2335
Just to clarify, anyone with taxable scholarship less than $2,600 owes zero taxes
Taxable up to $12,700 pay $1515 in taxes
Any amount above that is taxed at 20%
@fidoprincess this isn’t as bad as I feared, but something we really need to plan for.
You aren’t using the correct rates @3scoutsmom in Post #14. You were right the first time in your original post.
There are different types of unearned income and these types of unearned income have different tax rates - 1) qualified dividends and capital gains are taxed at trust capital gains rates (rates in Post #14), and 2) ordinary unearned income (such as taxable scholarships) is taxed at regular trust tax rates (your original post).
@Madison85 can you please point me to a link that explains exactlly how taxable scholarship are handeled with the new taxes? Can you please tell me how much tax would be owed on $16,800 taxable scholarship?
If DS18 accepts this scholarship it has a condition that he can not work for pay for the four years he is in college, including summers (expect for cetain approved internships that legally must be paid)
He also has an option of a lesser scholarship, $11,000 yearly taxable scholarship with no restriction on employment.
Depending on how taxes work out maybe that would be a better option?
@Madison85 clearly I am not as in tune with what’s going on as you are. I googled “page 532 of 1097 of the conference committee document which discusses tax simplification for a child’s unearned income.” and didn’t come up with anything meaningful.
Could you please send a link?
Who should I contact to get official confirmation on how this new tax works with scholarships? I apologize for being dense. If you look at my posting history it took me almost two years to wrap my brain around the current kiddie tax scholarship rules and now I see so many conflicting statements I just want to dig a hole in the sand and hide my head!
I’m not sure you’ll have a sure answer by the time you need to make a decision. No one is in a 100% tax bracket, so I can’t see where turning down $6000 in scholarship money x4 years would be better. If you accept the $16000 in room and board and don’t want it, you can always not take it in a year. Choose a lower meal plan, cheaper housing.