Paying taxes on scholarships-does out of state student file in both home state and college state?

<p>Hi again, We are still working on tax returns and I find it unbelievable that my student has to file and pay in both California where he lives and NY where he goes to school. Can that be true? His scholarships and grants are more than tuition and fees so he has taxable income (now called investment income on Form 8615) we finally figured out his federal return and our federal return but the state ones have us stumped. I can see some bits and pieces that say one might get credit for state taxes already paid in another state on the same income but neither return even has a space for entering that.
Thanks in advance for any help or experience you might have.</p>

<p>He should not get taxed on the same income twice by two different states. If he really does need to file in both CA and NY, he will have to file in one state as a non-resident, which may be just an additional form or it could be a completely different return than a resident of that state would file.</p>

<p>Edited to add: who told you that your son needed to file in NY?</p>

<p>Thanks for your reply. We don’t know how to do it. Everything we’ve read says we have to pay New York State taxes because his taxable income is more than $3K. Scholarship/Grant income is treated as “investment income” so we looked up “who must file” it says he must file as a non resident:
New York State nonresidents and part‑year residents
You must file Form IT‑203 if you meet any of the following conditions:
• You have income from a New York source and your New York AGI (Federal amount column) is
more than your New York State standard deduction. He is our dependent on our taxes and then it says "Does your child have investment income over $2,000? It would be to your advantage to file a New York return for your child to report your child’s investment income, since there will be no New York tax on the first $3,000 of that income. When you file your federal return, report your child’s investment income on federal Form 8615 (instead of federal Form 8814)</p>

<p>Part of my problem is that the income on his fed tax includes some California scholarship money, too so it seems I should deduct that because it’s not a NY “source” of income.</p>

<p>Taxable scholarship and grant money just falls under wages for the student not investment income. </p>

<p>@Dragonflygarden, there’s a change this year for federal which the OP is aware of:</p>

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<p><a href=“http://www.irs.gov/pub/irs-pdf/i8615.pdf”>http://www.irs.gov/pub/irs-pdf/i8615.pdf&lt;/a&gt;&lt;/p&gt;

<p>Here’s a thread from last year about this, updated this year:</p>

<p><a href=“Scholarship as Investment Income? - #16 by 2collegekids - Financial Aid and Scholarships - College Confidential Forums”>http://talk.collegeconfidential.com/financial-aid-scholarships/1473041-scholarship-as-investment-income-p2.html&lt;/a&gt;&lt;/p&gt;

<p>For the purpose of the standard deduction and having to file, taxable scholarships/grants are still earned income, but are now subject to the kiddie tax. And it’s still reported on the W-2 wages line with SCH.</p>

<p>My state always considered taxable scholarships/grants as unearned income for the purpose of filing/standard deduction. States don’t always follow federal rules.</p>

<p>Hi annoyingdad! I thought we didn’t have to file in NY because the threshold for filing NY taxes appeared to be $7700 but as I went to do the forms, I found that it was $3000 for a dependent. </p>

<p>This is SO confusing, one part says son’s income has to match his Fed return and then it says ONLY report NY Source income-any ideas? $1700 was outside scholarships not from his school so that shouldn’t be counted but there is no way in the form to adjust that amount out. </p>

<p>"Your Federal (IRS) Adjusted Gross Income is the starting point in computing your New York State income tax. The amount you include as income on your federal income tax return is transferred to your NYS income tax return.</p>

<p>New York State-source income for nonresidents is your Federal (IRS) Income that you earned in New York State.
If any part or your New York scholarship or New York fellowship was included as INCOME on your federal income tax return, then enter it on the line for OTHER INCOME on your NYS income tax return." </p>

<p>Thank goodness you taught me how to do the AOC! We went back and took the full amount that we could and hopefully it will offset all these taxes.</p>

<p>I hope someone who has a CA kid going to school in NY with taxable scholarship money would jump in here but maybe there aren’t that many-lol! Any help would be great or ideas of where to go to look for more info. Thanks.</p>

<p>Maybe someone with experience will jump in. Each state’s income tax authority should have a phone number to call for information just like the IRS. Maybe you will just have to call. Just like the IRS though, it depends how informed the person taking your call is as to whether you will get the right answer. But document the call(s) anyway in case questions come up later. The few times I’ve had to call the IRS I could tell who knew what they were talking about and who didn’t or was just reading a canned answer and just wanted to get me off the phone. When the latter happened I just called back a little later and talked to someone else.</p>

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<p>Well, that seems pretty clear. regardless of the amount entered on the federal return, the only part taxable in NY is the NY portion of the scholarship.</p>

<p>I know it might be a nightmare, but call the Franchise Tax Board in Sacto. when they open tomorrow to sort out how to declare the CA portion of the scholarship only . . . without them thinking you’ve shortchanged them.</p>

<p>Hopefully the state tax people (for whatever state) have better phone help than the IRS. The IRS hold times are outrageous, and you’re lucky after holding if you get someone who knows what they are talking about.</p>

<p>Anyway, for the OP, maybe it’s as simple as this: when you file your son’s CA taxes, deduct the NY source income (scholarships) from federal AGI. When you file the NY taxes, deduct from federal AGI everything but the NY source income (scholarships).</p>

<p>It has been a while since I had to file a NY non-resident form but in the past the form had one column for total income that had to match the federal return and a second column where you listed the NY based income. If I remember right, NY would tax the total income as NY income and then multiply the tax owed by (NY income)/(total income). The resident return should ask if you paid taxes to another state and make an adjustment. I have no idea if California has that adjustment.</p>

<p>I’ve been looking at this because D has NY state income from her college jobs at Barnard. There are two columns, but then it says to use the Federal column, which makes no sense at all to me because her other income was earned in Michigan where she was a resident. Michigan does tax her NY income as well as her MI income, but NY shouldn’t. </p>

<p>Can he just take residence in the state where he is going to school?</p>

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<p>Sure - but that has all sorts of other implications. Plus, if he has income in two different states (which it sounds like he does), the original problem still exists.</p>

<p>Thank you all for your help and ideas. I did call CA Franchise Tax board first this this morning. The phone answers and says they are too busy to take any calls and then hangs up! MuddKid, I guess that’s worse than hold time at the IRS.</p>

<p>I did chat instead and found that yes, he has to pay California tax on the total income from California AND New York but there is a California Schedule S Other State Tax Credit (ie double taxed on same income) that will give him some credit for taxes paid to New York. Hopefully, there will be something similar for New York so I am going to work on that now. </p>

<p>The interesting thing about all this new “scholarship as investment income” treatment is that I was told we did NOT have to use CA form 3800 “tax computation for certain children with investment income” that taxes the child’s income at the parents rate. We did have to use the federal form that matches (Form 8615) but the California rep said that scholarship/grant money was NOT investment income in California. I think that is wrong-ugh.</p>

<p>Thanks again for all of your help and great ideas!</p>