No, I have one who gets about $10k in taxable scholarships and has a little earned income, and the other one just has the typical $4000 summer earnings. So those would both wash with the $12k (or under) standard deduction, while I, as the parent, would lose a little off current $9k standard deduction for HOH, plus 3 x personal exemption of ~$4k each, so about $20k would drop to ~$18k standard deduction, plus $500 credit per child who is still a dependent, plus AOTC if qualified. Basically a wash.
@calmom So I figure that the only way that (for TY2017 and TY2018) that I will owe income tax is if I report my “stipend” as unearned income that is NOT a scholarship. Of course, if report it as self-employment income, I’ll owe income tax. So the best scenario for me, if the IRS doesn’t send me requests to pay more, would be to treat my “stipend” as a taxable scholarship. Since taxable scholarships are earned income for the purposes of the standard deduction, then for TY2017, when my $4k “stipend” = scholarship is below $4350 (obviously), I owe no income tax. Similarly, for TY2018, with $5k “stipend” = scholarship and $6k scholarship = $11k scholarship is below $11350, I owe no income tax.
For TY2019, with $8k “stipend” = scholarship and $12k scholarship, taking the $12k standard deduction leaves $8k taxable income, $5900 of which is taxed at the rates table for trusts and estates.
Charlotte, it looks like you have a good handle on things at this point.
Has anyone determined whether 529 funds are considered student contribution or parent contribution for the support test (tax independent or tax dependent)?
It probably depends on whether the 529 account is owned by the student, or someone else.
Having read this entire thread, is the question still outstanding as to whether or not students who are on full-ride athletic scholarships at schools that normally charge more than $12,000 for the R&B portion, will starting in 2018 find this amount to be taxed at the trust rates?
Separately, for students earning a scholarship equal to, but not designated/stipulated for tuition only, but paying for their fees/books themselves (non-taxable QEE’s), as well as their R&B (not a QEE), in prior years it was advisable for the student to consider a portion of their scholarship/grant to be taxable, so the parent could claim the AOTC. Is this still the case for 2018? As I recall it, it is generally worthwhile claiming up to $4000 of the scholarship as taxable, because a child’s tax on $4k is much lower than what the parents can deduct as a credit.
Your post revolves around the kiddie tax. Taxable scholarships are considered unearned income for the purposes of the kiddie tax. Starting in 2018, unearned income taxed under the kiddie tax will be subject to the rates used for trusts and estates. Generally, the first $1,050 of such income is not taxed because of the standard deduction taken by those who are claimed as a dependent on someone else’s tax return. The next $1,050 of such income is taxed at the child’s rate. Anything over that is taxed using the kiddie tax. For 2017, that means using the parent’s highest marginal rate. For 2018 on, that means using the rates for trusts and estates.
I thought it was established earlier in this thread that taxable scholarships were considered earned income. And I believe there were even IRS guidelines pointing to this as well?
As I said is my post immediately preceding, taxable scholarships are considered unearned income for the purposes of the kiddie tax. When calculating the appropriate standard deduction, taxable scholarships are considered earned income.
@laralei nope, not sure where you read that taxable scholarships are treated as earned income. They are only treated as earned income for the purpose of determining the standard deduction, they can not be used to determine support and are considered unearned income and subject to the kiddie tax. The current tax law uses the parents’ income level to determine the tax rate, the new tax law uses the standard rate for trusts. If taxable scholarships were considered earned income they wouldn’t have made a specific change in the new tax law.
Here’s a good article explaining the history of taxable scholarships
https://www.thetaxadviser.com/issues/2016/apr/kiddie-tax-may-be-due-on-college-scholarships.html
The only thing that has changed in the new law is that taxable scholarships will be taxed at the rate fixed for trusts.
Athletic scholarships aren’t treated differently than any other scholarship. If the amount covers room and board, it’s taxed, if it covers tuition it isn’t.
Agree it doesn’t matter if it’s athletic or merit but I’m still not clear on if the student can claim the new $12000 deducution, and does it make any difference if a parent can claim them as a dependent or not?
I think it is the same as now, except that the standard deduction will be $12000, and then the rates on the taxable amounts will be different so yes, the student as a taxpayer should get a $12000 standard deduction, the parent would get a $500 credit instead of the personal exemption.
It will be a mess. My daughter will have this last semester of non QEE (about $5000) and then she’ll graduate and hopefully get a job so will need some of that $12000 to offset taxable income. Let’s hope our friends at TurboTax work it out.
My apologies @BelknapPoint, I only popped in here & saw your last post. I keep meaning to go through this entire thread; should probably do so before it gets any longer.
No worries; income taxes and financing a college education can both be frustratingly difficult to comprehend at times. Put the two of them together…
As for the standard deduction for a dependent, I’ve only read that dependents may deduct up to earned income + $350, and it would make sense that if income was $11,650 or more then s/he would claim the full allowable 12k standard deduction. I see here that unearned income in the form of taxable scholarships may also be “part of this deduction”, although really unearned income.
It matters if a student is a tax dependent or not as it would be the student’s income (not the parents’) to determine if income eligible to be AMT exempt, to claim education tax benefits such as the ATOC, who claims the dependent credit or not, etc.
Has this been addressed here with a result?..For 2018, is the IRS verbage still vague on 529 withdrawals for the student support test? One IRS doc considers a 529 deposit as a “completed gift”, yet other 529 rules leave the account holder as the “owner” to retract the “gift”. Which is it??
Both. The 529 rules are probably unique in allowing for the concept of a completed gift even though the gift giver/account owner retains full control of the account.