Scholarships - Taxable?

<p>Yes, I realized the income would be taxed at a higher rate if we filed with our return, but I was being lazy and didn’t want to worry about another return. However, you answered my question and I appreciate it. This was her only reportable income so since it is below the $5,700, we don’t need to worry about it. Thank you for answering.</p>

<p>Last year I had to plunge into the murky waters of the 1098-T, and got alot of help here. FWIW:</p>

<p><a href=“http://talk.collegeconfidential.com/parents-forum/880686-tax-questions.html[/url]”>http://talk.collegeconfidential.com/parents-forum/880686-tax-questions.html&lt;/a&gt;&lt;/p&gt;

<p>I have a Freshman and the school used the billed amount for the whole year but only the scholarship for the 1st semester since they don’t apply it until January.
I going to use the billed amount for the year (since I paid in 2010) and the scholarship for both semesters since it determines what I would pay.
One issue that I see is that after his senior year we will get a 1098-t with his scholarship info for spring semester. any concerns with that? </p>

<p>The 1098 seems to be only sent to the students for informational purposes and is not sent to the IRS? Is that true? I looked around and could not find a reference to being reported to the IRS like a 1099 and W-2’s are reported.</p>

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<p>splat, please see my post #9 on this thread, it discusses my concern with this and how I’m dealing with it. Also see post #12 for a link to another relevant thread.</p>

<p>I need to really look at all of this. D received more in grants/scholarships than tuition/fees this year, plus she received a research stipend for the summer. I am not sure how the research stipend plays into things for our tax credits, since it is not listed on the 1098-T. I know it comes into play for her tax-wise, but how it affects our tax credits is something I need to look into, because I do have another child for whom tuition/fees was considerably more than his scholarship. Sigh …</p>

<p>kelsmom, how do you get tax credits for your D if her grants/scholarships exceed her qualified expenses? Do you just treat them as having paid non-qualified expenses, and therefore taxable to her? I can’t get my head around all this combining and adjusting between parent and student returns… </p>

<p>I’m pretty sure none of it will make a difference for me though, since the balance due is generally coming from their 529’s anyway. I did make a mistake this year and did a telephone transfer from youngest son’s 529 to pay some of D’s expenses…the account numbers are consecutive and listed on the same statement and this happened right at the end of December so I just caught it. I’m wondering if that will trigger a 10% penalty as his expenses were not sufficient to support that withdrawal…has anyone ever done something like that?</p>

<p>I won’t get tax credits for D. What I need to find out is if the excess she received over & about qualified expenses somehow negatively affects what we can get for S’s expenses. I am thinking one has nothing to do with the other, but that is my common sense … and IRS tax stuff doesn’t always follow logic. :)</p>

<p>Your daughter’s taxable scholarships/grants will be declared on her tax return. They won’t impact the credits you can get for your son. The AOC credits and eligibility are quite separate. for each student. I think the only one where eligibility is by family rather than individual student is the tuition and fees deduction.</p>

<p>"The 1098 seems to be only sent to the students for informational purposes and is not sent to the IRS? Is that true? I looked around and could not find a reference to being reported to the IRS like a 1099 and W-2’s are reported. " </p>

<p>Splatt It is reported to the IRS but not as important as money earned (W2s etc) I called them about this and they were not as helpful as you would think. They said to put in what you paid that term since the student hadn’t gone all year yet and could withdraw, but you should talk to the college also.</p>

<p>With the board’s help I think I have figured out my and my daughter’s federal returns. But now what about state taxes? Is she a resident where I live and nonresident where the school is? Or vice versa? At what point would she become a resident where the school is? </p>

<p>What would happen if we live in one state, school is in another, and she gets a paid internship in a third state. Do you file 3 state returns?</p>

<p>It’s making my head spin.</p>

<p>I have a second question too - Daughter’s income consists of grants/scholarships + $600 in work study, yet her tax rate comes out to 10%, does that sound right? Total income is under $15k.</p>

<p>PhotoOp, I am not a tax expert but have worked in a state other than my own. If she’s your dependent, I believe you would want to file her resident tax return in your home state and a non-resident return in the state(s) she’s employed in. Although she will report all of her income to your home state, there should be a credit given for taxes paid to other states…in other words, she will not be taxed twice for being an OOS employee.</p>

<p>kelsmom - you may be able to get tax credits for your D’s expenses. It is clear in the tax code that you can apply scholarship/grant money to room and board unless the scholarship/grant specifically says it is to be used for qualified expenses.</p>

<p>Yeah, I have to run the numbers to figure out if it makes sense to do that. If I do, D has to claim $8000 on her taxes, because I’ll have to move $4000 grant/scholarship money to her income & she earned a $4000 stipend for summer research. That also means she will have to file state taxes, which are quite expensive. If our bottom line is reduced by more than the state/federal taxes for her, we’ll pay her taxes.</p>

<p>^^That’s what we did last year.</p>

<p>I am wondering how percentage scholarships are dealt with tax wise. If my D has a scholarship that pays a percent of tuition, fees, room & board, but the total is less than the cost of tuition, will any of it be taxable? From what I understand, the scholarship just shows up as a credit to her account.</p>

<p>kelsmom, my plans are to move just $2750 over. $750 of money already over expenses plus 2K for a $2,000 tax credit. I think moving $4700 would generate additional taxes for her that would offset the additional $500 in tax credit. Our state taxes are also ridiculous. But, I’ll also run the numbers to make sure.</p>

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<p>No, if her scholarship is completely offset by qualified expenses then she won’t have to report any of it as income. The balance of the qualified expenses (plus books) would be available for you to use for the AO tax credit.</p>

<p>GTalum, I also need to look at various scenarios to figure out what works best. It shouldn’t be too hard to do … just time consuming. (Maybe if I spent less time on CC …)</p>

<p>Thank you sk8ermom, I was hoping it would work that way!</p>