@Mom2aphysicsgeek did you buy your son any clothing or household goods, help with a cell phone bill, take him along on a family vacation? Pay any out of pocket medical/dental expenses? any medication copays? Those smaller items count toward support, too.
In @Mom2aphysicsgeek’s case it would actually be better if son could be independent and claim his exemption, because he would have the standard deduction and the personal exemption to reduce his taxable scholarships, leaving less to be taxed (but still at kiddie tax if not enough earned income).
@ClassicRockerDad, yes her son also gets up to a $6300 standard deduction, but with a full ride the taxable part of scholarships is over $10 k (room and board amount and the research stipend on top of that), so a lot of it ends up being taxed with kiddie tax.
It obviously depends on the state, but at least in my state the state income tax deduction and exemption rules follow the federal rules, so $5,000 in earned income for a single dependent is completely covered by both the federal and state standard deductions, with no tax liability.
@mommdc I PM’ed you.
Well, after talking to 5 different CPA’s, I am convinced that I am more educated on this topic than they are! At this point in time, we are making the decision that he will have to pay kiddie tax rates bc we haven’t found a single CPA that can answer decisively one way or the other. Ridiculous that no one can really answer the question.
Yes, that is ridiculous. Someone should be able to interpret these tax laws to advise you.
The wrinkle is that the kiddie tax was intended for a different purpose, and only recently taxable scholarships were included with the unearned income categories for form 8615.
I do think that when college students are living away from home in an apartment all year and not receiving support from parents for food and housing that they should be able to file independent.
Scholarships for room and board are taxable income, they should be able to count towards the student supporting himself. Students who do research should not be punished because they receive a living stipend, which is not considered earned income, but pays for their living expenses.
It’s fine if they have to pay tax on the scholarships that exceed tuition, fees and books, but why do they have to pay tax at the parent rate?
I’d probably go the other way and let the IRS tell me I was supposed to pay kiddie tax, since there are also IRS docs that say scholarship income is earned income. Especially since it’s a stipend, which is rather like pay for work, no?
I’m curious what your tax software does when you (or he) enter that research stipend?
Most of it is scholarship money. The research $$ is classified as fellowship/assistanceship/grant.
The IRS sent him payment slips based on our having to make quarterly payments this yr. W/o earned income and confidence that he can claim himself as independent, it isn’t worth it to us to possibly trigger an audit. Fwiw, tax software does move scholarship $$ to kiddie tax, at least it did last yr. Dh is going to do taxes this weekend now that we know what we are doing.
Yes, when I did D’s the taxable scholarship amount over standard deduction was taxed at our tax rate.
I agree it might not be worth it if you have nobody to refer to (CPA) in case of an audit.
Next year if he does the REU at Cornell they might issue him a 1099 misc since he is not a student at their university. You could check with them how they handle that.
Yes the taxable scholarships are considered “earned income” for purpose of determining standard deduction (and requirement to file tax return). Which is a good thing because otherwise everything over $2100 would be taxed at parent rate. At least with the standard deduction of up to $6300 it is less.
But for kiddie tax it counts as unearned income. And it says that student must have earned income of more than half of his support to not have to file form 8615 (kiddie tax).
I just made a dummy account with Turbo Tax (since she already filed) and followed their instructions to enter scholarship income. It put it in earned income and didn’t ask for parent tax rate or any other info. Just FYI - same as it did with H&R Block when she really filed.
@OHMomof2 Did you try an amt greater than $6300?
HR Block software figured Kiddie tax for my daughter, the amount of taxable scholarship was entered in their "other"income section as a taxable scholarship reported on a 1098T form, not the W2 income section. Her amount of taxable scholarship was over $12K, and is considered as “unearned” income for kiddie tax purposes, even though it is also considered to be “earned income” for figuring the tax at her own rate.
Yup. I put $9000. No other income.
@OHMomof2 , did your daughter receive a 1098T from her school? I don’t think the taxable scholarship should be reported as W2 income as you mentioned in an earlier post. Did you input amounts from the 1098T or calculate the exact amounts on your own, as they can differ due to out of pocket QEE, shifting scholarship to income to get the AOTC, and the school billing for amounts that end up getting paid in the next year.
I remember that TaxAct software also calculated kiddie tax for our daughter when we used it several years ago. I am not sure why HR Block did not figure kiddie tax for your daughter, but it could have something to do with the input of 1098T amounts or reporting the scholarship as W2(earned) income. I calculated and input the amount of taxable scholarship for my daughter and it did not match the 1098T form.
I think I remember the 1098T interview asking something about amount of scholarship that paid for nonqualified expenses (room and board) and that’s where I entered the amount that was taxable. It entered it on the wages line with SCH to the left, and triggered form 8615.
Yes. I entered the 1098T info in my return and hers as well. I did shift some of her scholarship to be taxable for AOC, but that doesn’t really matter for this question. She had taxable scholarship income and it exceeded her standard deduction (she had wage income as well).
I followed the in-program (online) help directions for both H&RB and TT and entered the scholarship income where it told me to. In HRB’s case the entry screen was in a W-2 (but no W-2 form) area, and in TT it was in an “other income” area. Result was the same - it appeared on line 1 on her 1040ez.
Now I’m not too invested in this personally because my own tax bracket isn’t very high, so it makes little difference to me. I’m just wondering why the tax software for her never suggests a kiddie tax form or raises that issue at all.
@mommdc was that form triggered on your own return or your kid’s return?
I worked with the same 1098T in both returns. On our return it gave us an AOTC credit for fees and books. On her return the taxable scholarships that paid for nonqualified expenses ended up on line 7 of 1040 with SCH next to it.
I meant which return triggered the kiddie tax form? Hers, I presume? And it filled in the amount of scholarship in excess of whatever on it?