Having figured out how the scholarships work in the taxes, now I’m confused again.
My husband is doing our taxes today on Turbotax and claimed my 19 year old college freshman son as a dependent. He entered all of the information about scholarships etc. Now, does my son also file his own taxes?
Sorry if this is really straightforward, but I feel confused. I seem to remember that I did file my own taxes even when my parents were claiming me. What difference does adding his information into our tax documents (info about scholarships etc) make to OUR taxes?
Ok this is how it worked out for us and our freshman in college D.
We file our tax return with parent income and claim AOTC on books and fees we paid in 2015 (D has tuition scholarship). We claim D and siblings as dependents.
D files her own tax return with her work income and the outside scholarships that paid for room and board, which are taxable.
Then on the FAFSA in the parent section we provide AGI, income from working, tax paid, 401k contributions, education credit from line 50 on 1040.
In the student section we provide AGI, income from working (includes work income and taxable scholarships), tax paid, and in question 44d the amount of taxable scholarship included in AGI.
I just finished our taxes up in TurboTax this week and found this very confusing as each kid, all dependents, had different scenarios. I used TurboTax help to work through it. I have one student with a full scholarship (tuition, fees, from and board, books, etc. and a stipend for “spending” money). The only amount which is taxable is his stipend, everything else goes against the expenses. For my other two their grants and scholarship did not total more than the tuition and fees, so they were not taxable. I entered all their 1098-T statements (which had the grants and scholarships paid directly to the school included). I also added all their expenses in the appropriate categories (TurboTax help tells you exactly what should go in each one). I also was prompted for the 529 distributions (I own their accounts). Two of them also had income from part-time jobs and work-study. They did their own taxes including just the jobs and work-study. Not giving tax advice, I’m not an accountant, but this is what I did.
If your son received taxable scholarships, that information gets reported on his tax return, not on a parent return, even if your son is claimed as a dependent on a parent return.
First, thank you, I’m new to this and it is very confusing. I pulled up the IRS pub referenced, not light reading! I’ll work through their worksheets. One last question… if you have multiple kids in college, is it the aggregate of “Total scholarship amount - Qualified Education Expenses = taxable scholarship amount”?
It’s by student. Scholarships are designated as earned by a particular individual student, and that student’s scholarships must be attributed to that student for tax purposes, just as that student’s job earnings are attributed to that particular student for tax purposes.
OK, I think I’ve got it. Quick recap (to make sure I have it): As a parent of the dependents, I enter all their info into my return and receive the AOTC credit. If, for any student, their scholarships exceed their Qualified Education Expenses, that taxable income is reported as income on their taxes, right?
No, in most cases you don’t enter any dependent income information on a parent return. Student/dependent scholarship and income information goes on the student’s/dependent’s own tax return. If qualified in all respects, the parent can claim the AOTC on the parent’s return, based on the student’s/dependent’s information.
If there are qualified education expenses (tuition, fees, books) left after all scholarship and 529 money has been applied then you can claim AOTC for that student.
You do enter each student’s information separately on your Turbo taxes for the AOTC. Each student files own taxes and claims his own scholarships as unearned income if that student has taxable scholarships.
If your child with the full ride scholarship is a freshman, and the 1098-T boxes 2 and 5 are similar, it may be because the tuition is close in number to the r&b (both about $5000/semester?) and the school has included two semesters of tuition as billed in 2015 (fall and spring) but only included one semester of scholarships ($10k for tuition, but scholarships of $5000 for fall tuition, $5000 for r&b). This will catch up with him when there is no billing for tuition in his final semester and $10k in scholarships that semester.
And the parents are paying the taxes on the taxable scholarships in a way. Because of the kiddie tax and form 8615, the net unearned income from the scholarships is taxed at the parental tax rate.
That might make sense if it was the parent’s name and SSN on the 1098-T that reported the scholarship income, but we all know that’s not the case. As mommddc points out above, the only dependent income that can be reported on a parent’s return, and only in certain circumstances, is interest and dividend income. Ask the “experts” at VITA how it is that scholarship income that is reported under a dependent’s SSN can be included on a parent’s return.
Taxable scholarships are only considered unearned income for the purpose of the kiddie tax/Form 8615. For all other purposes, taxable scholarships are considered earned income.