@imrenee1 - Did you claim the AOTC on your own tax return? It can help offset your child’s tax bill.
@mom2collegekids
Our tax rate is 15%.
He has a job, but only works about 10 - 15 hours per week during the school year. He’ll work more over the summer. That’s money he lives on. He could probably make a monthly payment, but we thought it would be better to pay the taxes with a student loan, than to pay interest/fees to IRS. (Just guessing.)
EFC = 0
He didn’t take out any loans; everything was covered with scholarship.
Books were covered with scholarships.
Thank you for all of your helpful comments! Very informative!
P.S. I’m not complaining here - just asking advice. We are very grateful for the scholarships and happy to pay whatever tax is owed. Even though we knew he may owe some tax, it was surprising just how much. When I asked how do students pay it, I don’t think that called for snaky comments like “get a job.” He has a job to live - that extra thousand dollars to the IRS will just be a challenge to pay.
Just a heads up, if you receive a Healthcare subsidy make sure that you understand that declaring part of the scholarship taxable will increase your son’s income as well as the household income used for the ACA (if he is REQUIRED to file a return). Probably not an issue but it could be. Also consider the effect on your son’s federal and state taxes. Usually declaring 2000 of the scholarship taxable for AOTC is a no brainer but the next 2000 might not be worth it.
Many students would just ignore it, since they probably did not receive any 1098-T or anything to tell them that they need to pay taxes.
Also, you child may not getting student loans because “Your school must certify, or sign off on, any student loans you borrow to fund your education, and your school will only sign off on loans up to the cost of attendance minus scholarships, grants, or other financial aid.”
OP, that didn’t sound like a sna(r)ky comment to me. @mom2collegekids was offering help and a very logical suggestion. You didn’t mention in your original post that you son was working already. Unless you give all the pertinent details, you’ll get a generic answer to your question.
Treasury Fact Sheet on AOTC:
https://www.treasury.gov/connect/blog/Documents/Pell%20AOTC%204%20pager.pdf
If the link doesn’t work, just google “Treasury Fact Sheet on AOTC”
Also recommend irs Pub 970 as mentioned above, easy to navigate to at irs.gov
Somebody–either parents or son–should claim AOTC if possible and it will offset tax bill even though it may be on the other’s return.
Some considerations:
Are there stipulations on any scholarships that they can only be used for tuition and fees? The goal is to treat up to $4,000 of Pell/grant/scholarship income as taxable over and above the room and board cost. It does not matter that according to the 1098, the grant paid for tuition. You can legally act like you paid $4,000 in tuition from other funds, which means you or son can claim the AOTC which can be worth up to $2500 credit against tax bill (probably less if on student’s return). Pell grant is unrestricted. So if he had Pell of over $4k, add $4k to his taxable scholarship amount. The tax bill will go up a little but there will be a tax credit worth much more.
If you claim your son as your dependent on your tax return only you can claim the AOTC. Expenses your son paid for tuition (this would be the $4,000 freed up by making Pell taxable) are deemed paid by you for the purposes of the AOTC.
If you don’t claim him as dependent, even though you could, he can claim the AOTC but he is not entitled to the refundable part (maybe not be an issue as long as it zeroes out his tax bill).
When figuring support test for dependent, “A scholarship received by a child who is a student isn’t taken into account in determining whether the child provided more than half of his or her own support” (from irs Pub 17).
If you can’t claim him as a dependent, only he can claim the AOTC.
This is a complicated process and requires coordination of student’s and parents’ tax returns. But if you are willing to study up and put in some time, it could be worth thousands of dollars. Possibly will not just reduce tax bill but give you/he more back in the form of tax credit.
I’m in the middle of all this now and wondering how the increased income for the student will affect financial aid?
You say your students owes $1000 in tax. How much would you have spent on groceries for him for 4 months that instead was covered by his scholarship?
Food for thought.
Ok it seems that his tuition, fees, books is all covered by scholarships. But you said it was only for one semester, the room and board amount was $12,800 for one semester?
Also it is good that your son has a work study job. Usually students make about $1500 a semester, so about $100 a week. If his room and board is all covered by scholarship, what else does he have to pay for?
I guess he will have to save up the money from summer work for his taxes next year.
I would see if he can get a loan from the school to pay tax, if not make payments.
@OHmomof2, on the FAFSA in the student section there is question 44d that asks for amount of scholarships included in AGI. That amount will be subtracted from student income.
Thank you mommdc!!
@OHmomof2, you’re welcome, just learning about all of this this year.
When you link your tax returns to FAFSA with the IRS data retrieval tool (after you file tax returns and they are processed), most of these items will be transferred over from your return into the FAFSA.
From parent return it transfers over AGI, tax paid, education credit (nonrefundable part). You will list any untaxed income like 401k contributions in question 93 a because that is not listed on tax return.
From student return it transfers over AGI, tax paid. You will list the taxable scholarships that are reported as part of AGI in question 44d.
OP, is your son a freshman? If so, you might not need to file this year. For 2015 taxes, you only count 2015 semesters. If this is his first year, that only includes fall 2015. Subtract all qualified expenses (tuition, fees, books) and the amount prob falls under the $6300. He’ll definitely have to file next year, though.
I’m pretty sure you count expenses paid in 2015 even if they cover a semester in 2016, as long as that semester starts in the first 3 months of 2016.
I hope that’s the case, I’m proceeding as if it is…
@patsmom Yes, you’re absolutely right; she has been very helpful.My apologies. I just wrapped that comment up with the “don’t spend it all” comment and started feeling pre-judged.
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R&B = 12,808
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How much did he earn from his job?
@alooknac Thank you!
@mommdc Yeah… pretty much clothing, toothpaste, extracurricular. LOL (Feeling silly now.) 