I am by no means an expert on these things, but it’s your kid who got the 1099, right? I don’t see why it would be taxed at your rate and not the kid’s.
Anyone can start a return for free, and take it to the scholarship point to see how the different programs handle it. Taxact, Turbotax, H&R Block…there are many. Can’t hurt to give it a run, I don’t think you even have to put in names or social security #s to get to that point in the interview questions, or you could just put in fake info and correct it if you wind up using that program to file.
Here’s an explanation on how TurboTax deals with taxable scholarship
because although it’s considered earned income for the purpose of the standard deduction, it’s considered earned income for the purpose of the kiddie tax. Same as if your kid earned interest or dividends. Taxed at the parent’s rate on anything over the standard deduction and after the amount they are allowed to pay at their own rate on.
Is there an income threshold where the kiddie tax kicks in? In seven years of mega-scholarships for my kids that exceed tuition, this has never been an issue. The interest earned on their savings account were on their return, too. I’ll just continue living in ignorant bliss, I suppose.
I disagree. I just read every inch of the 1098-T as well as the letter that was issued with it from S’s University. Nowhere on either is there any mention that the recipient may have to report income and pay income taxes. First of all, the 1098-T is issued to the student and most college students know nothing about taxes. Even if the student reads every word they will still have no idea that they need to report scholarships in excess of tuition. Also, most college parents have not read Pub 970, nor do they have accountants. The vast majority of students do not report scholarship income, and in 20 years as a tax accountant I have never seen a single audit letter due to unreported scholarship income. 1098-Ts are notoriously incorrect and are only considered informational by the IRS.
The vast majority of students do not get scholarships (or grants) in excess on QEE. My DD does and her university does have information on their website about excessive scholarships being taxable.
Turbo Tax labels it unearned income and DD pays the kiddie tax on the amount exceeding QEE and whatever amount we shifted over to taxable so we could claim the AOTC.
@85,
Interesting post. I do not deal with taxes directly but I concur that the vast majority of students and parents just completely ignore this part of the tax code and don’t report the excess of SCH over QEE as income or worry about it in any way shape or form. Thus, the folks that break their neck’s to figure out what the law says get stuck with the tax burden and everyone else is at the pool drinking something with an umbrella in it.
That sounds like a wonderful system to me (sarcasm). Have I mentioned yet that the entire code and regs should be burned, buried and nuked and everyone responsible for any part of it should be brought up on criminal charges and prosecuted to the full extend of the law.
@84,
I’m not expert but I think your child’s tax threshold relates to whether their income exceeds the PE and standard deduction and I am sorry I don’t know the 2015 amount off the top of my head. So, if the PE is $4,900 and the SD is whatever, let’s say $5,000 for single people, the kiddie tax would kick in if the taxpayer has income greater than that amount. Even if income is below that amount you might want to file if you paid anything in to get a refund of what you paid in. Good luck with. This thread has been very informative.
No tax forms give advice on how to report the numbers on tax documents or if you are required to report as income. I have a W2 right here and in doesn’t say ‘enter as income on line 7.’ The 1098T doesn’t tell you you may owe taxes, it just gives information on what you were billed and what scholarships you received.
A 1099 is issued if a company wants to get credit for having paid you for something like contract work. That company isn’t giving you tax advice or telling you it is income, it is merely stating that it paid you $x, and what you do with that information is up to you.
You do not get a bye on taxes if you don’t get a form or if you ‘didn’t know’ that excess scholarship money was taxable. Drink those umbrella drinks by the pool if you want, but ignorance of the tax code isn’t an excuse.
Turbo tax will definitely catch this and figure it as kiddie tax. But be sure and do taxes completely. Last year H got number he thought wasn’t too bad because he didn’t finish our taxes and D’s didn’t have our tax rate until he did that. Thousands of $. You have to have scholarships that cover other things like room and board for this to be an issue, but definitely look at it if you have full COA scholarships. And if you are low income it may not be so bad, however even at a low rate and without regard to kiddie tax it can be an unexpected hit the first time you do taxes since nothing is withheld to pay taxes.
We actually paid estimated taxes for D this year to help out.