Was the job a work-study job? Federal work-study jobs do not have FICA withholding, but it’s otherwise a “normal” employment situation (i.e. not self-employment) where the wages are reported on a W-2 at the end of the year.
No, it was not a federal work study job, it was an on campus job, “student employment”, at a non-profit university.
https://www.irs.gov/charities-non-profits/student-exception-to-fica-tax
But that is a specific exception, written into the law. And still reported as W2 income, not 1099 income.
If the stipend is characterized as earned income, then IRS will want SE tax. That’s what happened to Charlotte’s sister. IRS wrote asking for SE tax.
If it is characterized as a scholarship, then it will be treated as unearned income, limiting the standard deduction that a dependent can take to $1050.
Based on Charlotte’s sister’s experience, it may be that IRS has some flexibility in allowing the taxpayer to choose how to treat it.
@calmom I don’t know if you have any advice for this: my mom keeps saying that I cannot claim a standard deduction because she claims one for me. Is that true - do I then have my entire income taxed?
@calmom and @BelknapPoint can clarify… it I believe your mom is taking an exemption for you…and if that is the case, I don’t believe you can do so as well.
@thumper1 I know I can’t claim the personal exemption… because she does… but the standard deduction is separate from the personal exemption if I’m understanding correctly.
I’m really confused. Have a child who will be a freshman next year. Looks like we could get $3500 scholarship each year for room and board. From what I am reading, R&B scholarships ARE taxable. My questions if anyone can help:
- Does that $3500 taxable scholarship get reported on my child's tax form or the parents?
- Does it get taxed at the child's tax rate or parents? (We would still claim our child as a dependent)
- Assuming this goes on the child's 1040, and assuming other income from jobs is marginal (let's say $1500 for the year); what would the tax be o that $3500 and how does it get paid? Do you just owe a large amount at the end of the year with no penalty or are you expected to make quarterly payments?
Very confusing. The school won’t answer questions – just says to seek advice from CPA. Our CPA isn’t too swift and I’m thinking of moving to TurboTax now that we’ll never be itemizing again.
@WantWhatsBest I’m 17 and am trying to figure out this myself.
- I think it's reported on your child's tax return, because it isn't interest or dividend income.
- Consider it earned income, that goes into the box with W-2 income... so $5000 in that box... add $350 (since the child is dependent), the standard deduction is $5350, and the child doesn't pay anything. This is what I've gathered from this thread; not sure if it's correct.
Wait… if what I said above to WantWhatsBest is right, then scholarships are treated as earned income for the purposes of the standard deduction only. So if I notated the stipend as SCH 4000, my standard deduction would be $4350 and I wouldn’t owe anything.
@WantWhatsBest it’s taxed to the child not to the parent, this year (current tax rules) if you get caught up in kiddiee tax law a portion may be taxed at the parental rate. Next year when they change the tax rules it could be taxed up to 38% but no one knows how actually the new tax rules will work. The good news for you is this year is that if the scholarship is paid by semester you’ll only have half of that in this tax year and it will be under $2100 so no worries. It’s next year with two semesters and no clear idea about the new rules that you have to worry about.
Charlotteletter – I just have to say … kudos to you for wading through this stuff and trying to figure it out. At 17! I’m really impressed.
3scoutsmom: 2019 is when my son would have $3500 in scholarship for R&B. Fall 2018 he would have $1750. Both fall under the new tax rules. Hopefully there will be more clarity by then. I just want to know what to expect and what the real value of the scholarships are. And to be prepared. Don’t want to get hit with interest/penalties for not paying quarterly on tax owed.
This is correct. For tax year 2017, if your parents claim you as a dependent on their taxes, they can claim the exemption for you and you cannot claim your own exemption on your taxes. But you can still take the standard deduction on your taxes based on your filing status.
Under the new tax law, exemptions will go away starting in 2018. A taxpayer will be allowed to claim a $500 credit for certain dependents, but this credit will not be available for taxpayers with no dependents.
@WhatWhatsBest I may be totally wrong, but I don’t think you owe quarterly tax (regular scholarships are not self employment, and he’s not going to owe $1k of taxes anyway on $1.5k of earned income).
So for 2019… still he should be able to take the standard deduction as I said above. If he can only take $350 + earned income = $1850, then that leaves $3150 taxable unearned income. The first $1050 would be tax-free, the next $1050 at his rate (10%), and the next $1050 from the rate table for trusts and estates, which would be 15%, so only $158 in taxes. Either that or the first $2100 is at 10% and the next $1050 is at 15%, so $263 in taxes.
@BelknapPoint I’ll just have to convince my family accountant, ‘cause my mom is convinced that I’m wrong about this. Oh well. I won’t qualify for the Child Tax Credit on my parents’ return starting tax year 2017, because I turned 17 a couple of weeks ago, but I think my parents will get the $500 credit for me starting tax year 2018.
I’ve never paid estimated tax on scholarships. You are tpenalizedthe firstyearanyway, and you don’t have to pay estimated if 90% of tax was paid the year before or if it is under a certain amount. My daughter’s is always under $1000.
For tax year 2017 (tax forms will be completed in the first few months of 2018) your parents will not be able to claim the child tax credit for you because you will be over age 16 at the end of 2017, and they will not be able to claim the $500 credit for you as a dependent because that part of the law doesn’t take effect until tax year 2018.
Thanks, CharlotteLetter. You’ve explained it to me better than my tax guy probably would. I have to admit I am nowhere near up to speed on how college bills/funds/merit/remission are treated. And I pride myself on being really tax savvy, because I live in a high-tax state; I am employed full-time but also do self-employment (hence, my query about quarterly taxes); and I’m also trying to think through how I’ll be affected with being unable to itemize any longer. I will tell you one thing: Any students on this forum who are interested in becoming CPAs or tax attorneys are going to have plenty of work!
Taxable scholarships are considered earned income when figuring the standard deduction for a dependent, and the limit for a dependent’s standard deduction in 2019 will be $12,000. So in 2019 $3,500 of taxable scholarships plus up to $8,500 in other earned income should result in $0 in taxable income.
The child tax credit for 16 and under will be doubled to $2,000 starting in 2018.
Having older dependent children in college can also provide a $500 credit to the parents.
The standard deduction for married filing jointly is going up to $24,000 and single to $12,000. There will be no more exemptions.
We are hoping that the full amount of standard deduction will apply to a single student who is a dependent of parents. That would reduce earned income by a maximum of $12,000 (that includes taxable scholarships, for the purpose of figuring the standard deduction).
Then net unearned income will be taxed at trust rates, but the specific way this will work, I am not sure about yet.
@twoinanddone wrote:
I may not need to pay this year, or much next year, so I don’t have to pay quarterly (also I just learned what “estimated tax” is). However, the following year (tax year 2019), if I have $10k in taxable scholarships and $8k in “stipend” which may or may not be considered “scholarship” I don’t see how I can escape paying, and I may even have to pay quarterly because $18k income will probably result in greater than $1k of taxes.
@BelknapPoint I edited that a few seconds after posting to clarify that they get the $500 credit for tax year 2018.