<p>So a hypothetical $10000 R+B bill leads to $4200 in income, which leads to $420 in Federal income tax.</p>
<p>Well, I would imagine that feeding an 18 - 21 year old son for a school year would cost at LEAST $420.</p>
<p>@ notrichenough - where did you get this calculation? I had my H do a quick and dirty IRS calculation today based on 13,500 grants/scholarships and 2000 self employment income. He presumably took out the 5800, and then the rest was taxed and he came up with just under $1200. </p>
<p>We do not pay state income tax.</p>
<p>No, I’m not complaining about the free money, just unprepared for the large tax bill. I’m not sure either about how to advise S about whether or not he should be working to help pay expenses and next year’s school expenses. We have to weigh the net benefit/risk ratio.</p>
<p>Also regarding the spending less on S for food, etc… that doesn’t equate to putting that much in the bank in savings, that means that we may have a bit more to put food on the table or prevent the electricity from getting cut off. Our particular lives at this moment are less than ideal, which is why paying IRS $1200 is a significant hardship for us.</p>
<p>crazymomster - </p>
<p>You asked about “materials”. Anything that is specifically required for a course counts. If it is in the syllabus, you can count it. Happykid (Theater Tech) gets to include all sorts of makeup supplies for Stage Makeup and shockingly expensive sewing shears for Costumes.</p>
<p>*@ notrichenough - where did you get this calculation? I had my H do a quick and dirty IRS calculation today based on 13,500 grants/scholarships and 2000 self employment income. He presumably took out the 5800, and then the rest was taxed and he came up with just under $1200. </p>
<p>We do not pay state income tax.</p>
<p>*</p>
<p>Are you saying that your son will have $13,500 in grants/scholarships not related to tuition/books?</p>
<p>And, he’ll have $2000 in earned income (from what? work study?)</p>
<p>How much can he earn from a summer job? </p>
<p>*He presumably took out the 5800, and then the rest was taxed and he came up with just under $1200. *</p>
<p>Did you ask him what he did?</p>
<p>No, I’m not complaining about the free money, just unprepared for the large tax bill. I’m not sure either about how to advise S about whether or not he should be working to help pay expenses and next year’s school expenses. We have to weigh the net benefit/risk ratio.</p>
<p>I’m not sure what you’re saying here. Are you wondering whether your son should work this summer to help pay for SCHOOL expenses? Or should he work to help pay for taxes? I think he should do both. Or maybe I’m not understanding.</p>
<p>Ok, well off the top of my head:</p>
<p>13500+2000 = 15500 minus 5800 standard deduction - 140 FICA credit = 9557 in AGI</p>
<p>tax is 8500<em>.1 + (9557-8500)</em>.15 + 2000<em>.9375</em>.133 = $1258 in taxes approximately.</p>
<p>$13,500 is a lot for room and board, it’s crazy how much some schools charge.</p>
<p>If S has to buy a tuxedo for band at his college, would that be a non-taxable item such as books are?</p>
<p>From [Taxable</a> Income for Students](<a href=“http://www.irs.gov/individuals/students/article/0,,id=96674,00.html]Taxable”>http://www.irs.gov/individuals/students/article/0,,id=96674,00.html) :
If there is an actual course for band, and the class requires a tux, then I would say yes it would be non-taxable.</p>
<p>If band is an extra-curricular activity, then I would say it is not non-taxable.</p>
<p>12,600 is room and board, however when I added tuition and fees then subtracted out pell grant, school grant, and school scholarship I came up with 11086. S has received an outside grant of $2000, so we’re up to 13,086… however, no I have not taken out book expense, which I’m guessing will be around $1000… total guess at this point.</p>
<p>The $2000 other income is from self-employment (soccer referee) and will likely be what he earns by the time he goes to college in early August. It could be as much as $3000 by then. (Not all of this will be available however as we’ve had to use the kids money to help pay bills and buy groceries.)</p>
<p>S will not be working a “regular” paycheck job where he could have extra taxes taken out. </p>
<p>I think he will try to ref while he’s at school, but I don’t really know how much he’ll be able to manage. I’m hoping he’ll earn about $200/month.</p>
<p>So, I think that addresses everything. Oh, but I have a question… so I’ve come up with the 11086, but I’m confused now as to which way that compares or whatever to the 12600 of room and board. So in other words, will we have 12600 (+ the other 2000 grant) in taxable income or will we have my formula above of the 13086?</p>
<p>I guess this is out then as well?</p>
<p>American opportunity tax credit: Taxpayers will receive a tax credit based on 100 percent of the first $2,000, plus 25 percent of the next $2,000, paid during the taxable year for tuition, fees and course materials.</p>
<p>Is there a rule that if you get grant aid that it goes to tuition first. Can I choose to have the grant cover the room and board which would leave my efc to cover part of the tuition?</p>
<p>In other words my DS2 received just about enough grant aid to cover tuition. R&B&Fees will come from stafford and efc. Will I be able to claim the Amer Opp Credit?</p>
<p>The grant does not specify what it is covering on the FA award letter - its basically a need based grant.</p>
<p>^ What someone wrote above was that the 1098T will provide information about tuition and fees, it will also include information about all grants/scholarships received. IRS will tax any monies that are above and beyond the tuition, fees, and books/supplies. So you cannot pick and choose particularly.</p>
<p>Ok, thanks. So glad I found that out now. Much appreciated.</p>
<p>If the grant or scholarship does not specify it is for a specific purpose like tuition, you can allocate it any way you like.</p>
<p>Counting some of the grant as r+b will let you get the AOC, at the expense of paying taxes on the amount. So you will come out ahead doing this.</p>
<p>Note that the AOC is scheduled to expire after 2012, unless Congress extends it.</p>
<p>For this year, Crazymomster, you’ll probably be all right. You’ll only get half the school award distributed for first term. The other half will come next term. The outside awards are probably going to be given out in full. So for first term you’ll probably get 1098Ts in the amount of the outside awards plus 1/2 of what the school/fed government distributes. You can then apply the half year, tuition, fees, books, supplies to that amount. That is not likely to bring your son’s income to a taxable level unless he is working a lot of hours.</p>
<p>It’s 2013 that will be the kicker. You will then have two semesters of awards, as well as whatever your son earns. So you do have some time to figure this out and plan accordingly.</p>
<p>I think cptofhouse is right again! Why shouldn’t the “income” the student receives to pay for housing be taxed? It certainly should because, like cpt pointed out, any $ earned to pay for normal food/housing, wherever the student lived, would normally be subject to income. A student who does not live at school, yet is on full scholarship for tuition would not get to have his living expenses be untaxed.</p>
<p>Working is never a bad thing. I doubt a student typically earns enough that his tax bill will outweigh his earnings…</p>
<p>Also, crazymom, just put away what you’d normally spend to feed him and you will save the $ if you want to help pay his taxes. I just came home from food shopping and I’m sure I spent at least around $30 on food that S1 will eat. </p>
<p>You need to put away the cost of food that you won’t need to buy him when he is gone ($30*30 (weeks at school)=$900) Let/MAKE him work! He should be anyway! I know I spent more this week because S2 is coming home soon. I spend less now that he lives at school, but I spent even less when he was farther away and didn’t come home every other weekend. </p>
<p>I’m sorry to be mean here…but I don’t care how poor you are…I don’t think anybody should be complaining that they can’t afford $1000 year to send their child away to child. At minimum wage of $7 they would have to work nearly 3 whole hours a week to earn that $. I think they can do it. Maybe the parents DON’T have the $ come tax time, but the student can certainly open a savings account and start saving it. A 10-15 hr part time job over the summer can raise that much $.</p>
<p>^ if the only thing that we had to pay or S had to pay was the tax bill, I absolutely agree that there should be no problem whatsoever to do that. but that isn’t the reality of the situation. (I also have no philosophical issue with paying taxes on r&b… I have a financial issue with it and needed the information as to what will be taxed. Not once have I indicated in any way that I don’t think it is fair, etc.)</p>
<p>cptofthehouse - thank you for pointing out that this year we’ll only be concerned about 1/2 year/award. that will definitely help and our (S’s) tax bill will not as high as I thought… for tax year 2012. He will still have to pay a fair bit due to the self employment income and some scholarship/grant monies, but otherwise, it won’t be so bad (well not as bad as I thought).</p>
<p>I think that anyone getting scholarships, loans, work study, having a kid going to college, needs a financial work shop going over the ramifications of all of this. What threshholds a family needs to watch, tax information, different ways to try out filing taxes, making sure some money is saved for possible taxes owed, etc.</p>
<p>^^^I agree - financial planning should go hand in hand with college planning/selection. There are many choices to be weighed with 4 years in mind, not just the first year. It has been my experience that sometimes families with their financial ‘back to the wall’ make decisions that aren’t well thought out either due to lack of information or a belief system that assumes others are looking at the big picture for them.</p>
<p>One more suggestion. Following up on NotRichEnough’s post. You can allocate the scholarship monies however you want (unless they are specified). In this final year of the AOC you may be able to take advantage of that credit. Since your taxes are low you may only qualify for the $1,000 refundable portion.</p>
<p>To get the credit you would have to allocate an ADDITIONAL $2000 to taxable income - which based on your son’s taxable rate would incur an additional $300 (15% of 2,000) but you would get $1,000 refundable tax credit. (If you owe/paid due any tax you would also get $1,000 credit off what you owe).You would net at least +$700 and maybe +$1,700.</p>
<p>See these 2 links
[Publication</a> 970 (2011), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)
[American</a> Opportunity Tax Credit: Questions and Answers](<a href=“http://www.irs.gov/newsroom/article/0,,id=211309,00.html]American”>http://www.irs.gov/newsroom/article/0,,id=211309,00.html)</p>
<p>See Q8 in the second link.</p>
<p>One recommendation - if you are getting money back file EARLY to get the cash - then pay son’s tax bill.</p>
<p>When we were doing our 2011 taxes, we looked at Publication 970 (2010) as the 2011 version was not available (at least on-line) at the time we had to do our taxes for the FAFSA/Profile (around early March) On the 2010 version that had 2 examples of how you could use your non-specified scholarship to use the American Opportunity Credit. We followed the example where our scholarship was used for room and board so we could get the refund on our tuition. I just looked at the publication for 2011, and it seems different than the 2010 version. (It does not give the same examples, and it seems like student has to file a tax form for everything. Our student did not file tax return as although he had some income from the scholarships it was below the filing minimum.) I am now worried we did this wrong (more worried about getting in trouble than the amount owed to us.) Can anyone tell me if the “rules” changed from 2010 to 2011?</p>
<p>There are still a couple of examples in the 2011 version that match what you did. It sounds to me you did everything right!</p>
<p>Example 1.</p>
<p>In 2011, Jackie paid $3,000 for tuition and $5,000 for room and board at University X. The university did not require her to pay any fees in addition to her tuition in order to enroll in or attend classes. To help pay these costs, she was awarded a $2,000 scholarship and a $4,000 student loan. The terms of the scholarship state that it can be used to pay any of Jackie’s college expenses.</p>
<p>University X applies the $2,000 scholarship against Jackie’s $8,000 total bill, and Jackie pays the $6,000 balance of her bill from University X with a combination of her student loan and her savings. Jackie does not report any portion of the scholarship as income on her tax return.</p>
<p>In figuring the tuition and fees deduction, Jackie must reduce her qualified education expenses by the amount of the scholarship ($2,000) because she excluded the entire scholarship from her income. The student loan is not tax-free educational assistance, so she does not need to reduce her qualified expenses by any part of the loan proceeds. Jackie is treated as having paid $1,000 in qualified education expenses ($3,000 tuition – $2,000 scholarship) in 2011.</p>
<p>Example 2.</p>
<p>The facts are the same as in Example 1, except that Jackie reports her entire scholarship as income on her tax return. Because Jackie reported the entire $2,000 scholarship in her income, she does not need to reduce her qualified education expenses. Jackie is treated as having paid $3,000 in qualified education expenses.</p>
<p><strong>But I did look at the 2011 907 and was rather concerned by the following - which is not how understood it. I thought books were qualified expenses - but apparently books are only qualified if they are paid directly to the school (and thereby reported on the 1098T). I think a lot of us didn’t see this caveat in 2011.</strong></p>
<p>Related expenses. Student-activity fees and expenses for course-related books<em>, supplies, and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution</em> as a condition of enrollment or attendance.
In the following examples, assume that each student is an eligible student and each college or university an eligible educational institution.</p>
<p>Example 1.</p>
<p>Jackson is a sophomore in University V’s degree program in dentistry. This year, in addition to tuition, he is required to pay a fee to the university for the rental of the dental equipment he will use in this program. Because the equipment rental fee must be paid to University V for enrollment and attendance, Jackson’s equipment rental fee is a qualified expense.</p>
<p>Example 2.</p>
<p>Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes. The college has no policy about how students should obtain these materials, but any student who purchases them from College W’s bookstore will receive a bill directly from the college. Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Donna bought hers at College W’s bookstore. Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution.</p>