But a scholarship is for the student, not the parent! Only if the student would have to pay taxes would the scholarship be taxable.
How can they consider it parent income if the parent doesn’t have to pay anything for a student’s college by law? (unless they are divorced and live in NJ!)
Also I found this:
Taxable Scholarships, Fellowships & Grants
Your scholarship is taxed if it was used to cover any of the following:
• Room and board
• Travel
• Research
• Clerical help
• Fees, Books, Supplies and Equipment (Not required for the course or attendance)
Most students don’t get full tuition plus, so it wouldn’t apply to them. But I can see low-income students might run into major issues with this if they are getting free room and board.
The Kiddie Tax rules may cause investment income (such as interest, dividend, and capital
gains) received by students who are under age 24, to be taxed at the parent’s higher rates instead of at the
student’s lower rates. The student’s earned income (including taxable scholarships, fellowships, grants, and
compensation) is not subject to the Kiddie tax rules.
If u don’t pay any tuition, u don’t get a 1098, right? So if someone got a full ride: tuition, room, board, fees, they would have to pay tax on the room and board, but they wouldnt get a 1098 because they didn’t pay any tuition.
Schools don’t have to issue a 1098T if the scholarship exceeds tuition. Sort of backward, but the IRS wouldn’t get notice if the school doesn’t issue the form.
The parent is never taxed for the scholarship. It is the student’s tax burden.
While a full ride student should be at around $15000 for just room and board, it’s possible to get more. Say the r&b is $15000 at UCLA. The football player on scholarship would get that, plus he may qualify for Pell at $5800, plus he now gets a stipend of $5000, so now his unearned income is $25,800. That’s a hefty tax bill. Other smarty pants students may get scholarships above COA and they’d be owing too.
In no way mean to hijack, but this has me thoroughly confused now.
we would love to use the AOTC on our kid; we qualify financially to take it i believe. can someone explain if there’s a way? here’s our details.
we paid out of pocket in 2015 $6500 for first semester – books, housing & fees. DS had scholarship for Tuition – $4200. We have a 1098 from college listing scholarship amount of $4200. He earned $6000 on his W2 for 2015. Any shifting that can be done?
@twoinanddone, that’s exactly right. My son had to make quarterly payments to the IRS last year because he owed so much in taxes for 2014. This year, because he made about $4000 in quarterly payments, he will “only” owe about $800 in taxes. His needbased aid from his college is about 52K. His outside scholarship was about $6500. So all told, his scholarships amounted to apx. $58,500. Tuition was about $49,300, so he was taxed on about $9200 of scholarship. Add to that the $13,000+ untaxed 1099-Misc income he earned on his summer internship, and that added up to about 25K income. He’s getting married and won’t work a 1099-Misc job anymore, thankfully, but it was a good learning lesson.
I imagine more than a few students on full rides get a shock when they owe $3000+ in taxes.
Taxable scholarships that exceed the standard deduction are subject to kiddie tax. Scholarships are considered earned income for purpose of standard deduction and requirement to file a return, but unearned income for purpose of form 8615 and kiddie tax.
@bgbg4us, housing is not a qualified education expense. Your situation sounds like ours, we have a tuition scholarship. My D reported grants that covered room and board as taxable income on her return, we claimed books and fees as QEE for AOTC.
@OHMomof2 scholarships above tuition books and required fees are considered UNEARNED income by the IRS not earned income and therefor subject to the kiddie tax. https://www.irs.gov/pub/irs-pdf/i8615.pdf
So the student is required to pay the taxes owed at the parents rate. I am not happy about this and think it’s an unfair burden for the student but it is what it is…
I understand everything except which state to report what to. We live in Michigan; kiddo gets financial aid In excess of tuition from college in Illinois; also worked off-campus job in Illinois during school year, and worked job in Mich in summer. Who do we report fin. Aid and Illinois job $
to?
Thanks to everybody for your advice…you’re all wonderful.
the money earned in Illinois would definitely be reported in Illinois, and I’d guess the scholarship money too since that’s where it was given to him. There should be an option for part year resident or non-resident, and he would then get a credit for amounts when he files his Michigan return.
" scholarships above tuition books and required fees are considered UNEARNED income by the IRS not earned income and therefor subject to the kiddie tax. https://www.irs.gov/pub/irs-pdf/i8615.pdf "
I wouldn’t treat this statement as gospel. There are several IRS publications that “specifically” refer to taxable scholarships as EARNED income.
Please show me an IRS document that states that scholarships are earned income. If scholarships are earned income then won’t they generate a w-2? It would be MUCH better for my d to be able to list her scholarship as earned income instead of unearned income so please show me the documents you are referring to so that she can file her scholarship as earned income. I appreciate your help!
@3scoutsmom I linked two above. Also, when I filed D’s taxes, H&R B software put it on line 1 of her 1040EZ, along with her income from working at home the summer before school. .
Some of you need to read the tax instructions. There’s a complete difference between the aotc credit and whether or not some scholarships are taxable or not. If you care, Google and read.
@bgbg4us the answer to your question depends on whether the scholarship your child received was for tuition (which would mean he could not shift it to taxable), or was it for the amount of tuition (in which case he could shift it to taxable and you the parent potentially could get a larger AOTC.)
Some scholarships are restrictive. Most tend to be “in the amount of…”
