The problem is that scholarships are not supposed to count towards support. But if a student has scholarships that pay for food, housing, etc. then neither he nor parents provide the support.
Does he pay for clothing, gas, insurance all out of his scholarships?
He pays for everything except health insurance which is a family plan. He paid rent out of his research stipend which we had thought was income.
Have you tried to enter all of this into turbotax or other tax software?
If you haven’t supported your son and he does not live with you, when you report all his taxable scholarships, will it put him as independent?
Does it trigger form 8615?
No, we haven’t done taxes yet. I guess we could just enter in numbers and see what it does.
Get an accountant, not a tax place, a real CPA. Here’s why…most reputable outfits, if they make a mistake, will cover any penalties and fees you incur as a result (you’d still be on the hook for additional taxes). As a result, CPAs will make darn sure the information they give is right.
You suspect you will be on the hook for the kiddie tax. If the only thing not paid for by scholarship money is health insurance, and you provide that, looks like you’re covering all of his non-school related support. Is your home still his permanent address?
Yes, it’s probably best to have a tax professional (CPA) on your side.
He has a yr’s lease in his name, but I do not believe he changed his driver’s license address to that. He is moving to a new place with a new yr’s lease at the end of this one.
The irony is that his health insurance costs us nothing extra. We have 2 adult kids who are employed full-time still on our plan bc they can stay on until 26 at no extra cost.
I think a CPA is going to have to become a priority. I hope we haven’t waited too long to meet with one. We didn’t realize until a week ago that his research job last summer was not earned income.
Does the money from the summer research job cover all his expenses? Rent, food, gas, insurance, cell phone, clothes, toothpaste? If not, what other source of income is there?
Yes, the summer research job paid for all of his summer expenses. His academic scholarships paid for all of his academic yr expenses.
Isn’t part of the support test worksheet where you put his bank balance at beginning of year and end of year? Did he spend any money from his savings, past work earnings on anything? Or was it all from excess scholarship refunds?
I called a CPA. The first one I spoke with said it was beyond her knowledge base. She took down detailed info and is going to relay it to their head CPA. Hopefully I will get a call back this afternoon for an appt!
I’m going to have the same problem for 2016 with my D2 who is doing an REU.
We’re not going to claim her on our taxes even though we could since we provide more than 50% of her support. We don’t get any benefit in claiming her anyway since our exemptions are phased out.
On her own taxes, she’ll have the $5000 in 1099-Misc, but since we don’t claim her, she should be able to take the American Opportunity Tax Credit (AOTC), which should offset all of her taxes due on this money since even at our rate, it won’t be $2500.
Does anybody see any problem with this?
@ClassicRockerDad, if you are eligible to claim her, because you meet support test etc, and you choose not to, she still can’t claim her own exemption.
Only if you are not eligible to claim her as your dependent.
You can’t just pick and choose what to do, or @Mom2aphysicsgeek wouldn’t have the problem she is having.
There is a catch 22 wherever you look it seems.
Yes, she is not allowed to claim herself as an exemption, but she can still take the AOTC if she is not claimed as an exemption on her parents’ return.
Well, that accountant called me back. We talked for about 30mins and at the end he ended up referring me to a different office bc he couldn’t answer the question definitively. So, I have a call into that accountant.
Yes, it might be challenging to find a CPA who is very familiar with the intricacies of taxable scholarship income and kiddie tax.
Maybe this is a dumb question/suggestion (I know so little about tax stuff) but have you tried asking the financial aid office at the college? They had to have had this kind of circumstance come up before. At the very least maybe they know of someone who definitely would know.
We are in a similar boat with our eldest daughter. She has a full ride and has had paid summer internships. Although we pay no actual financial support while she is at school, and for most of the summer, she does spend time at home periodically, she is on our health insurance(at no additional cost as we have other siblings on a family policy we pay for too) , we do pay for clothing and misc. incidental items, out of pocket medical/dental expenses, vacations with the family, use of a car when she is home, etc. for her. So, technically, we do provide some level of support for her, more than half of those expenses not covered by her scholarships and internships
Since the IRS does not consider scholarships and fellowships to be student provided “support”, and she is a full-time student under age 24, she is still considered our dependent. She pays income tax on her scholarship that is not QEE, and her summer internship, and a part time job, assessed at the kiddie tax rate on all of that “unearned” scholarship/internship income, because it exceeds the unearned income threshold of $2100. I have used HR block software and it does have questions pertaining to all of this, but it is still up to the student/parent to calculate and input the amount scholarship/internship$ that will be included as income on the student’s return.
From form 8615(Tax for certain children who have unearned income) instructions:
“Support. Your child’s support includes all amounts spent
to provide the child with food, lodging, clothing, education,
medical and dental care, recreation, transportation, and
similar necessities. To figure your child’s support, count
support provided by you, your child, and others. However,
a scholarship received by your child is not considered
support if your child is a full-time student. For details, see
Pub. 501, Exemptions, Standard Deduction, and Filing”
more info in IRs pub 970
It stinks that she has to pay tax at our higher rate, it seems very punitive, but of course, her education is still costing us very little in the end, and we are grateful for that.
I am not a tax professional, but this is my understanding of our situation, it is very confusing if your student is in this situation. There are other threads here on CC with additional info. about that you can find by doing a search of the topic.
I found one which is particularly helpful, but there are more:
This is from several years ago, but is still good info- the same scholarship/fellowship income. is treated as both earned and unearned in certain situations:
2013 Instructions for Form 8615 wrote:
Unearned income includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, etc. It also includes taxable social security benefits, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2, unemployment compensation, alimony, and income (other than earned income) received as the beneficiary of a trust.
Table 2.2013 Filing Requirements for Dependents wrote:
unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants.
@BelknapPoint, yes you are right. I read a bit further and there is a way for dependent to claim the AOTC but not the full amount it seems.
@Mom2aphysicsgeek, you are smart to ask these questions over the phone, so hopefully you will find someone who can help you.