Can any explain how an sports scholarships might be taxed on current tax laws? If the kid is a big time college football player and has to travel for away games and bowl games and the scholarship plays for food, travel and lodging for sports events is that all taxable scholarship? How about uniforms and equipment? Is the value of those considered taxable?
A sports scholarship is taxed just like any full ride scholarship; the QEE is excluded and everything else is taxed such as room and board, insurance, some fees, and now for the big schools either the stipend or pell grant.
Uniforms, other clothing, travel to games, (not to home because that isn’t part of the scholarship and they must use their stipend or pell to pay it themselves), food provided at practices or during games or travel, equipment, etc is not charged/taxed to the student, but they can’t receive money in lieu of any of those things either. Food was a big deal for many years as only scholarship athletes could get it at practice and it was only 2-3 years ago that teams were allowed to feed everyone on the team at practice. There were limits to portion sizes and the 110 pound gymnast got the same amount as the 350 pound linebacker, and the rules were so strict as to call a plain bagel a snack but if there was cream cheese it was a meal. When my daughter travels, her coach will give them a limit ($10-14) at restaurants like Olive Garden , but her boyfriend’s coach doesn’t let the boys anywhere near the menu - he orders for them family style.
My daughter gets a lot of clothing, except she has to pay for socks, a mouth guard, and she gets an allowance for cleats but hers cost more than the allowance. I have to pay a fee that funds meals after games, snacks for the bus when traveling (yes, no luxury plane trips), the coach’s gift, etc. Some things never change.
Now, do all athletes pay the tax on their R&B? I’m sure many do not but that’s between them and the IRS.
So I’m 17 and am starting college next fall, and will most likely have some “leftover” scholarships. Naturally I’ve never filed taxes… so anyone’s take on my situation would be great! I’m claimed as dependent and will be until I graduate college.
This year I earned only $4k in summer and have no unearned income, so I’m good with not filing ($4380 is the dependent standard deduction, right?)
For 2018, I’ll earn, say, $4800. For 2019, say $8280.
- If I get the scholarships that are most likely, I'll have $1494 per semester left over after paying QEE for Fall 2018 and Spring 2019, and $994 per semester left over after paying QEE for Fall 2019 and Spring 2020. The uni would refund this to me.
- If I get the scholarship that is less likely, I'll have $5861 per semester left over after paying QEE, applicable over all semesters. Almost all is R&B.
So under the 2017 tax laws (which I know don't apply to future years, but I'm trying to see how this works), what happens? Please correct me anywhere where I make mistakes... these numbers seem very high to me.
With the lesser scholarship:
2018:
earned
$4800
-$4380
$420 taxable earned income at a 10% rate
unearned
$1494
-$1050
$444 taxable unearned income at 10% rate
total 2018 taxes due = 42 + 44.40 = 86.40
2019:
earned
$8280
-$4380
$3900 taxable earned income at a 10% rate
unearned
$2488, broken up:
$1050 - untaxed
$1050 - taxed at 10%
$ 388 - taxed at parents’ rate… not sure, let’s say 30% (I know there is no tax bracket with this for 2017)
total 2019 taxes due = 390 + 105 + 116.40 = 611.40
I feel like I’ve done something incorrect here.
With the greater scholarship:
2018:
earned
$4800
-$4380
$420 taxable earned income at a 10% rate
unearned
$5861, broken up:
$1050 - untaxed
$1050 - taxed at 10%
$3761 - taxed at parents’ rate… not sure, let’s say 30% (I know there is no tax bracket with this for 2017)
total 2018 taxes due = 42 + 105 + 1128.30 = 1275.30
2019:
earned
$8280
-$4380
$3900 taxable earned income at a 10% rate
unearned
$11722, broken up:
$ 1050 - untaxed
$ 1050 - taxed at 10%
$ 9622 - taxed at parents’ rate… not sure, let’s say 30% (I know there is no tax bracket with this for 2017)
total 2019 taxes due = 42 + 105 + 2886.30 = 3033.60
@CharlotteLetter, I didn’t look closely at all your numbers but just want to make sure you know that for the purposes of the 1040, taxable scholarships are counted as earned income.
I use Taxact for us because our AGI is too high for Turbotax Freedom Edition.
But when I tried using Taxact for my D, it wanted to charge me like $40. I did both her federal and state one for free with TT Freedom Edition.
The tax law is changing starting in 2018. We don’t know for sure how the standard deduction and earned/unearned status of taxable scholarships and taxation of net unearned income at trust rates is going to work out exactly yet.
But hopefully the higher standard deduction will reduce the tax burden of scholarships in excess of QEE.
But with the numbers you gave, when you are earning $8,000 a year, you might not be dependent on your parents for tax purposes anymore, it depends on how much of your own support you provide, and how much they provide.
I can tell you how my D’s situation is taxed at current tax law though.
She has about $3,400 earned income from a job, and $4,000 taxable scholarships.
On her 1040A tax form, the two numbers are added together on line 7 $7,400, and next to that on the left is SCH 4,000 (indicating the scholarship).
AGI on line 21 is $7,400
Line 24 has the standard deduction of $6,300 (taxable schol counts as earned income for std ded)
Line 27 has her taxable income $1,100
Since her unearned income is over $2,100 kiddie tax applies (taxable schol counts as unearned income for form 8615 kiddie tax)
So now on form 8615 her tax is figured
Her unearned income of $4,000 is subtracted by $2,100 which is $1,900 (net unearned income)
And it asks for her taxable income from 1040A line 27 $1,100
Then it says to use the smaller of these two numbers.
Then it asks for the parents’ taxable income from their tax form (because it is taxed at the parent rate)
Then the $1,100 is “added” to parent taxable income and the tax is figured from the tax table for that number
then the parents’ actual tax from their return is subtracted from that
The difference is the kiddie tax of the child and is added on line 28 on her form 1040A
Also the school might refund you money for textbooks, that is also QEE, so not all of your refund might be taxable.
You will have to see if the school posts spring aid in 2018 or 2019.
Lots of variables. You can come back in Jan 2019 and get some help with your actual situation.
@mommdc I think I will still be dependent. I will not be providing any of my own support, aside from car insurance. They will still provide room and board at home (if I don’t get the full ride), medical, etc.
Isn’t the $6300 std deduction only if the filer is independent?
How is the scholarship both earned and unearned? If it’s earned for standard deduction, but unearned so that she can pay Kiddie Tax… it doesn’t make sense.
Also, my refund money is assuming textbooks have been paid. The school posts money the first day of the semester (you can view how much you get through the student account though), and refunds in the third and fourth weeks.
What about when parents won’t tell dependent kids their taxable income?
It just seems to me that I’ll be paying much more with a ‘full ride’ scholarship than if I live at home.
@CharlotteLetter, this isn’t the only case where items are defined differently depending on the context. For instance, for tax filing purposes only tuition, fees and books are considered QEE. However for qualified 529 distributions QEE also includes room and board, computer and peripherals, and internet access if it is used primarily by the student (for instance internet access at the student’s school apartment). So taxable scholarships are defined as earned income for one piece (the 1040, including application of the standard deduction) and as unearned when it comes time to calculate the tax owed (kiddie tax). So yes, a scholarship can be both earned and unearned depending which form you are filling out.
The standard deduction applies for a dependent, but a dependent can’t claim the personal exemption on his/her return; the parents claim that exemption on their tax return. In 2018 though, personal exemptions are going away. We don’t yet know whether a dependent student will be able to claim the full amount of the new standard deduction though, or exactly how the tax will be figured for taxable scholarships.
I read the TCAJ a few times, I don’t think they made any changes to taxable scholarships and dependent’s standard deduction.
@4kidsdad, wasn’t there some discussion several pages ago in this thread about whether scholarships would be taxed at the estate and trust rates rather than at the parents’ rate? If so that’s a change from how it’s done now.
QUOTE: With the old kiddie tax system, taxable scholarships were earned income for the purpose of determining if tax return had to be filed, and figuring standard deduction, and unearned income for the purpose of the kiddie tax, is that no longer the case then?
Was this question specifically answered? I know in the past, I have always treated taxable scholarships as earned income. This was verified by 2 CPA’s and I know the tax program we use, also treat it as earned income.
Turbotax treated the taxable scholarship (for room and board, non QEE etc) as earned income for the standard deduction, but as unearned income for kiddie tax calculation, and form 8615 was generated for my D.
Now she has a tuition scholarship which is tax free, and we claim books and fees for the AOTC, and she claims her state grant as taxable income because it is applied towards room and board.
If your son has a full tuition scholarship, and the $2,500 engineering scholarship, then once all of his scholarships anf grants are offset by tuition, fees, and books, then only the rest is taxable. (So $2,500 plus Pell grant minus fees and books).
Was his work income and taxable scholarship over $6,300 standard deduction?
I was responding to
I think that taxable scholarships will still classify as the earned incomes for the purpose of standard deduction. And the standard deduction of dependent still is the larger of $1050 or the dependent’s earned income plus $350 (up to the regular standard deduction).
The TCJA did not change how taxable scholarship be classified; or specify any new limitation on dependent’s standard deduction, other than the regular standard deduction as before.
@twoinanddone the conference bill actually refers to the use of the trust rates for kiddie tax as simplification…(not the part that needed simplifying IMO).
If you get a full ride scholarship, you are receiving money for room and board.
Money paid for your room and board, that is “income” in the eyes of the IRS.
When you live at home, your parents get the money for rent and food from their wages, and that money is taxed; your parents can also claim you as a dependent, in part because you are living in their house and they are providing room and board.
But the full ride scholarship would give you enough money so that you can move out of your parent’s home during the school year and live on campus instead. So in the view of IRS, that is income.
If you weren’t going to college and instead got a job, and wanted to move out or your parent’s home, you’d need to find a job that paid enough to cover rent and food. So maybe instead of the summer job that paid $4000, you’d have a year-round job and earn $18,000. And then maybe it would turn out that you were spending $1500 a month on food and housing and incidentals…and it sure would seem that you had been better off living in your parent’s home with the $4000 job. But you would be paying taxes on an $18,000 income, not on the -0- you had left over after paying for all the necessities of supporting yourself.
So yes – that full ride scholarship is going to result in taxable income that you wouldn’t have otherwise – that’s because you are being taxed on the benefit you are receiving. The amount of the tax is still subject to question – I am assuming that you will be able to take the $12000 standard deduction against it, and I have no idea what rate it will be taxed at – but that’s just the way things are with income tax. Generally, the more money you get, the more tax you end up owing (until you get rich enough to be able to figure out tax loopholes and more sophisticated ways of sheltering income).
@CharlotteLetter, do you want to stay at home? If not, can your parents afford to help you financially with the taxes on the full ride scholarships? If you want to go away to school and your family can help you pay for the taxes and other extras (eg travel, sports tickets, spending money for going out with friends, etc) then you absolutely should take the full ride and never look back. Sure, taxes will make a full ride slightly less “full” but you are still far better off than students who do not have a full ride available to them. Paying $1000 tax on a $10,000 taxable scholarship, for example, still leaves you with $9000 to pay toward room and board; students who receive no taxable scholarship or grant have to pay the full cost of room and board. If you can go away to school for just a few thousand dollars per year including taxes, you’re in a very good position.
I would guess, although I’m not certain, that planning ahead to have paying jobs during the summers should cover the taxes and extras during the school year with a full ride scholarship. Since you’re still a junior you can even start now to work and save toward that goal if your family will be unable to pay anything toward your college. If you are lucky enough to have parents or other family members in a position to help you financially, then you can use your own earned money for other things. Win-win.
It’s very good that you are proactively considering the impact of taxable scholarships now. If your parents are not already aware, you can make them aware that some scholarships are taxable. In turn, hopefully they will tell you how much money they can contribute to your college costs and you can all figure out together whether going away for a full ride scholarship is affordable.
@calmom
I don’t know how other universities do it, but as far as I know, a student doesn’t receive the money for room and board - it never crosses into their possession. It’s the university that doesn’t charge the student. More like a gift, semantically speaking. Happily, I have savings and could pay the tax without too much trouble (I just want to know how much I’ve got to pay, as I’m only entering the world of trying to figure what car and computer, if any, to buy), but I guess it just sucks to be someone without savings to pay tax on money they never see.
I’m just learning about taxes, but where does the $12k standard deduction come from? Isn’t that only for married couples? Isn’t the standard deduction for dependent filers only the larger of $1050 and {$350 + earned income, including scholarships, or $6350, whichever is smaller}? Or is the standard deduction going up to $12k for everyone? That wouldn’t be so bad… but if the standard deduction is $350+earned income or $12k, whichever is smaller, that makes basically all of R&B taxable. And in my case, since university is less than an hour from home, my parents aren’t going to have zero cost for me during the school year.
https://www.irs.gov/taxtopics/tc551
https://www.efile.com/tax-deduction/federal-standard-deduction/
If I moved out of my parents’ home and made $18k/year, I would be taxed at my own income bracket, not my parents’. Surprisingly enough, I might even have a chance to have some of my taxable income in my possession. B-)
My mom told me today that I should just accept that any income, of any sort, will be about half mine and half taxes. :))
@traveler98
Neither of my parents believe that scholarships are taxable, lol. I would be paying taxes on my scholarship; not them. Of course, I don’t actually HAVE it yet, and it’s very competitive (10% of scholarship applicants get it, although a fin aid officer said I probably have a 30-50% chance) and if I don’t I can still attend because the university is in town and I already have one that pays tuition and fees (and will probably get books tacked on).
FWIW, I might be able to get away with not filing on scholarships, because many people do not, but seeing as I need to keep an active security clearance, I can’t skip filing…
Actually, the university would probably bill the room and meal plan charge to your student account, and then apply the scholarship as a credit.
As you said, if you live at home, any excess aid after tuition and fees, would be refunded to you, and would be taxable, because it would help pay for living expenses.
@CharlotteLetter, the $12k standard deduction will be new for the 2018 tax year. Taxable scholarships are considered EARNED income for figuring the standard deduction. If the R & B scholarship is exactly $12k in 2019 and is your only source of income for the year, your earned income will be $12k and (we hope) the $12k standard deduction would be applied, leaving you with zero tax owed on your $12k scholarship.
@mommdc Any excess aid after tuition, fees, books from the university bookstore, room, meal plan, and any other expenses (through the bursar’s account) is refunded in the third week.
@traveler98 Oh, so if I earn $5k in the summer and have $5k of R&B for the fall semester, then what would my standard deduction be? Is it then $10,350 (or $12,000, it doesn’t matter between the two)? (My college does stuff on a semester basis, 3rd week of the semester - so half of the R&B appears in September.) I guess I would file but not owe any taxes.
So then 2019 would be the year I’d have to pay, because I’d have $8k summer income (my summer income legitimately nearly doubles going from high school to college), $10k R&B (spring and fall semesters), which is $18k, minus the $12k deduction, so I’d be taxed on $6k. Would that be at my rate (10%)? My parents’ rate (28-33%)? Some of each?
I wonder if I should use some of my electives to take a couple tax accounting courses! 
I have some accounting courses, and it could be both fun and useful…