After a hefty standard deduction (at least $10,350), you will not have $18k in taxable income in 2019 based on your figures above.
I just read this from post #177:
@CharlotteLetter Room and board is never a QEE. @thumper1 is absolutely correct. My ds attended a school that required freshman to live on campus. Many do. Still not a QEE.
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Um, is this just for the purposes of what is taxable regarding scholarships? I might be getting confused with 529 funds. My understanding was that you CAN use 529 funds for room and board. That it is considered a QHEE. Can someone please confirm? Please please please? I’m semi-freaking out now, because I was expecting to use about $30,000 of 529 funds for R&B.
Also: Regarding the 1098-T not having correct info or not being needed … I know someone who definitely got an audit letter, and she thinks it was because the school never reported their 1098-T to show she had made tuition payments that she was claiming. Something like that. There was a mismatch, and that set off the letter from the IRS. But in addition to that, they looked at a bunch of other things on her return too that they were questioning. It was for tax year 2015 and she got the letter in 2017. She sent them a bunch of documentation to prove everything they were questioning. It hasn’t been resolved. She keeps getting letters saying she will hear from them in 90 days and then she gets another letter saying it will be another 90 days. Moral for me is: Assume nothing. Document everything. Cross-check everything. Make sure you receive all the 1099 and W2s and 1098s you were expecting – and double check the amounts. Call the university and get a copy of the 1098-T if you didn’t receive it. Etc etc etc.
There are different definitions for the term “Qualified Education Expenses” depending on which tax benefit you are talking about. For a student who is attending at least half-time, room and board is a QEE for tax-free use of 529 funds. A Coverdell ESA is the only other tax-free benefit that I am aware of that can be used for room and board.
@CharlotteLetter You don’t have to worry about quarterly taxes the first year. We have had to file them every yr since then.
Charlotte, the rule about standard deduction is here: https://www.irs.gov/taxtopics/tc551
(That’s for the 2016 tax year but IRS will update the page for 2017, and I’m pretty sure it is the same for 2017 and even in 2018 after the new law).
So again, your mom doesn’t know tax law.
Strangers on the internet may or may not know.
Just go to irs.gov and use their search box at the top of the page and you will get the answer from the only source you can trust.
I am not fond of the IRS but I love their web site – they have lots of information, and present it in many different ways to make it accessible. If you are a true tax nerd you can even subscribe to their email lists at https://www.irs.gov/e-file-providers/subscribe-to-updates or https://www.irs.gov/newsroom/subscribe-to-irs-newswire-1
@calmom Yeah, I know where the rule is - I’m not feeling super fond of the IRS either, but their website seems quite organized - but I was thinking that if my mom was referring to something else, perhaps ‘strangers on the internet’ could guess what she meant when I didn’t know. 
But you already know from your sister’s experience that IRS required her to pay tax on the 1099 income. Or was her stipend combined with other earnngs for that year higher than the standard deduction?
I think the bottom line is that a “stipend” is not the same as a “scholarship”. So you can’t assume that the same rules apply. You can wipe out your tax liability by treating the stipend as earned income, but then you owe Self Employment tax. You weren’t going to school over the summer – you were working. Maybe it was called an internship or fellowship and not a job – but bottom line you went to a workplace and not a school every day.
Look at it this way: supposed that instead of getting that wonderful research internship opportunity, you had spent all summer working at McDonald’s. You would have had to pay FICA. So why should IRS allow some students to work for pay over the summer and avoid taxes, while other students who are working for pay over the summer do have to pay taxes? If you want an internship that doesn’t require you to pay taxes, look for one that is unpaid-- there are plenty of those around. But if you want an income, then you can generally expect to pay tax of some sort on it.
@calmom They only required her to pay tax the second year, when she duplicated the first year’s procedure but didn’t have the accountant do it. She earned the same amount both years. Do you have any idea why the IRS didn’t require her to pay the first year? You’ve indicated that the second year, they required her to pay because of a matching problem with the 1099 and they wanted her to pay self-employment tax (although they let her treat it as unearned, take the $1k unearned deduction, and pay her rate on the rest despite being dependent/kiddie tax). She had no other earnings.
@CharlotteLetter - paying quarterly is very easy. Whether or not you have to pay quarterly is based on the previous year’s taxes in any case. But if and when you do need to pay quarterly you can just set up an account at https://www.eftps.gov/eftps/ and pay everything online. So really you don’t have to worry about it.
I can tell you from experience that if the tax amount is large, it’s easier to pay quarterly than annually anyway. That is, if a person is going to owe $1200 in taxes, for most people making a $300 payment once every three months is going to be easier on their budget than making a one-time payment of $1200. Maybe as a high school student you don’t appreciate this yet, but not everyone has a bank account with thousands of dollars in it – a lot of people, particularly self-employed people, are basically living month-to-month, spending most of their earnings on living expenses. So getting hit with a huge tax bill once a year is not at all helpful. (I am much happier when my estimated taxes have been overpaid and I am due for a refund then the years when I am faced with a big bill in April, usually for both the state and federal systems, and about the same time my second property tax installment is usually due).
@CharlotteLetter – I’d really have to see both tax returns to know why one year triggered a Request to Pay letter and the other didn’t. But since those letters are often triggered by computer algorithms, it could also be due to changes in the IRS’s software – IRS is probably updating its own software every year to improve its efficiency.
@calmom My parents most likely will not let me pay online (and as I said in PM, I can’t access my money without their consent). What are the rules on paying quarterly? Isn’t that here: https://www.irs.gov/faqs/estimated-tax/individuals/individuals
Since my federal withholding would be $0, only the first condition is actually relevant. Next year (2018), with $5k stipend and perhaps $5-6k scholarship, should not be over $1k in taxes (since my standard deduction would be over $5k). The following year (2019), with a $8k stipend and perhaps $10-12k scholarship, could be over $1k in taxes, especially if I get a part-time job on top of that. No idea on 2020 (I’ll hopefully get funded grad school or a gainful employment upon graduation).
Also, how can I be expected to pay quarterly if I will get a summer internship that doesn’t even start until May, and I don’t know until April if I get that? By 2019 I may not have thousands of dollars (if any) in my bank account because I’ll hopefully have saved and spent all of that on a car.
You are creating a problem that doensn’t exist. You will turn 18 in 2018. After you are 18 you can open your own bank account wherever you please, and you can arrange direct deposit and withdrawals however you want.
And if income fluctuates throughout the year, quarterlies are due only on the amount that has been earned that quarter. I find it easier for myself to do 4 equal payments so I don’t have to do the extra record keeping.
Oh, duh. I forget that I will be 18 next year, as my parents expect me to stay with them for several more years. Sorry.
On the actual topic of taxable scholarships… do books that are required for the course but not purchased from the institution count as QEE? I know they don’t for certain credits, but for determining the amount of the taxable scholarship, I can’t find a clear answer.
*Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses
for:
-Tuition and fees required to enroll at or attend an eligible educational institution; and
-Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.*
Clear answers are here:
https://www.irs.gov/pub/irs-pdf/p970.pdf
Chapter 1 covers scholarships.
@BelknapPoint Since it doesn’t specify where the course-related expenses are incurred, I guess I can assume that it includes books purchased from outside bookstores, and then add the amount from outside bookstores (per receipts) onto the QEE on the 1098-T when calculating the QEE to deduct from the total scholarship amount when calculating taxable scholarships. Does that sound right?
Your school won’t include books you buy from the school bookstore on qEE. You need to keep a running total.
So if I’m understanding this… in 2018, a student who has income from earnings or scholarships would file her own taxes (just like now) and get the $12k standard deduction. If that student is still a dependent, the parent could claim the student, qualify as HOH and get an $18k standard deduction for HOH, and maybe the AOTC and a $500 credit for the over 16 child credit.
This is looking better for us than I thought. Other daughter will also get a $12k standard deduction.
No, the dependent student would not get the $12K standard deduction, unless their earnings and/or scholarships came to $12K. If the student earnings/scholarships were $5000, then the dependent student would have a $5350 deduction. New tax law doesn’t change the deduction for dependents.
Obviously a student doesn’t really need a deduction that is more than they earn, if the only income is frrom earnings and scholarships. But remember this whole thing comes from tax rules meant to prevent parents from transferring assets to their kids to reduce the level of taxes on investment income. So if the kid also happens to have a trust fund that is yielding $10K a year in interest and dividends on top of the earnings & scholarships, then the kid is going to be taxed on the trust fund income. And for that the kiddie tax definitely kicks in and under the new law that means that the trust fund kid will be taxed at the rates set for estate income.