Yes I knew about loans. Just talking about grants which I thought were taxable but just triple checking. Thank you!
Even if your school declares the entire school year scholarship on the 1098-T, you do not have to declare the entire amount. There is a box on the 1098-T that indicates that some of the money is for the next semester. You can choose to either declare the 2019 amount in 2018 or not. You just need to keep good records and make sure that you declare all eight semesters of taxable scholarships.
Does the taxable scholarship amount get reported on state tax returns?
@Marcie1975 Yes, we had to report my D’s scholarship on her return in MA because she had a summer job there and in Oklahoma because the state of Oklahoma awarded some of her scholarships, thankfully TX our home state has not state income tax! The OK was very small but the way MA handled it was really bad she was working a below minimum wage summer camp job and thought be cause she made so little she’d get all her state taxes back but only got about $5 back because they added in her total schlarship that she had to report on her Federal income tax.
I understand that scholarship money to used for the costs to travel abroad are taxable but what about costs directly related to study abroad? Is scholarship money taxed if it’s used to pay for tuition and books at a foreign university?
@otterma if your child is taking classes and getting credit, the tuition is not taxable.
Can any confirm whether post #10 is correct?
If it is, going back to the example in my original post, with $6.5k in qualified expenses covered by scholarships. If the student includes a portion of the $6.5k in income, then the student can claim the credit? Even if offset by the remaining standard deduction? This would be a good answer because the credit is partially refundable (in other words, even if you have $0 tax liability to offset with the credit, you still get a refund).
That would be a great answer. Just can’t figure out if it is correct or not.
The student is unlikely to qualify for the refundable portion of the credit.
If all college costs were covered by scholarships, what would be claimed for AOTC?
@mommdc If the scholarships are not designated for tuition, books, or other QEE, you claim to have used some (probably $4K) toward room and board. This will make the $4k taxable income to your child, but you can then claim you paid $4k OOP toward QEE and get the AOTC. Depending on your child’s earned income, this may or may not be advantageous.
His tax liability is already $0 since his income is smaller than the standard deduction.
“The student is unlikely to qualify for the refundable portion of the credit.”
“If all college costs were covered by scholarships, what would be claimed for AOTC?”
This was my assumption as well, that he would have a $0 tax liability and no refundable credit. However, post #10 was intriguing to me and I wanted to find out if I was missing something.
My daughter is going to school in Illinois. She does not have any earned income in Illinois. She has received a scholarship directly from the school, National Merit scholarship, and federal Pell and seog grants. Do I only report the school scholarship on the Illinois return? Are the others subject to state taxes? For example: The calculated taxable amount is $5000. I understand that the full $5000 would be reported on the federal return but would the what portion is reported on Illinois return (not all scholarships/Grant’s are from Illinois), and does any of it get reported to Indiana??
It will depend on how the state taxes are assessed and credited. My kids both went to schools is states that do not have state income taxes. Colorado uses the federal tax form as a base and then will give a credit to taxes paid to another state but if there is no other state tax on those funds, Colorado is happy to tax them… There isn’t any way to ‘get them off’ the amount reported as income in Colorado even though that money came from out of state. Same is true for income in those states too. My daughter earned some money in the no-tax states and she paid that in Colorado (except it was below the standard deduction so she owed no tax). There is a way to do ‘part-year’ resident, but since there was no tax owed, it wasn’t worth it to me to figure out how to do it. (and she really is a resident all year).
Post #10. Yes, this is true, but it is Parent who claims the AOTC if the student is a dependent. The student has to claim the taxable scholarship (and pay the taxes) and the parent gets the credit. Yes, it works even if the the amount claimed by the student is covered by the standard deduction. Finally, a tax scheme I can get behind!