<p>This are "planning ahead" questions - sure hope somebody can tell me if I have this clear!</p>
<ol>
<li>My freshman student will have $4500 per year toward housing. I know that is taxable. Is it taxed on her Federal form, or ours (student is still a dependent)?</li>
<li>For qualifying education expenses: who gets the credit (if the student is still a dependent), the student or the parents? </li>
</ol>
<p>Thanks for your help!</p>
<p>1 Hers
2 Parents</p>
<p>^^^yep…</p>
<p>Do be careful preparing your daughter’s return. Form 8615 now includes “excess” scholarships as unearned income subject to the Kiddie Tax. Some of your daughter’s income might be taxed at your marginal rate.</p>
<p>For 2013 taxes, if the student has only the taxable scholarship incomes and it is less than the standard deduction, she does not have any taxes to pay. Although the student may have to file Form 8615.</p>
<p>Are you saying she will only have that scholarship specifically for housing, or will all scholarships/grants exceed tuition/fees by that amount? QEE for the AOC has to be reduced by the tax-free portion of scholarships/grants. You can reduce tax-free scholarships/grants by her reporting more as income and then have more QEE for the credits but in some cases that’s less attractive than it used to be with the kiddie tax (form 8615) implications now. Generally she won’t have to file unless all her income exceeds the standard deduction which for 2013 was $6100 or if she wants to get any withholding back.</p>
<p>The information on taxable scholarships/grants is in chapter 1 of IRS Pub 970 and the AOC is chapter 2:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>Oh, just great. It’s 1040X for us now. Thought I was done with taxes. Missed that about the 8615 totally. Thanks.</p>
<p>Phooey. That was a cool extra $500 in taxes. At least got it in by the 15th.Thanks again doubledad. Had no idea the excess scholarship was UNearned income.</p>
<p>Now I’m really confused. Just read IRS Pub. 929. It says “For purposes of determining a dependent’s standard deduction, earned income also includes any part of a scholarship or fellowship grant that the dependent must include in his or her gross income.” Pub. 501 says something similar, though not about dependents. If it’s earned income, then I can do the $6100 standard deduction for dependents and include scholarship in that and not do Form 8615 at all, which is for unearned income. In which case my original tax return was correct. So much conflicting information. Maybe I’ll file a 1040XX? and try to get back the money I just sent.</p>
<p>But Form 8615 instructions say “Unearned income includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, etc. It also includes taxable
social security benefits, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2.” We received no W2. This is is direct conflict with Pub. 929 and 501. I hate the IRS, I swear.</p>
<p>Yes, for filing requirement for dependents & dependent’s standard deduction, taxable scholarship is earned income.
For F8615, taxable scholarship is unearned income.</p>
<p>OMG. That is crazy. I hate them even more. It still means I paid too much now, as I made standard deduction too small, but the original tax form I paid not enough. </p>
<p>I feel your pain! The whole IRS convolution for treatment of education expenses and scholarships (heck, even the convolution of defining “QEE” dependent on what credit or QTP or whatever one is discussing) is as bad as any business expense or investment income convolution. Then the income limits that are at different levels for different credits or programs. And … making sure you leave enough expense following use of a QTP to even take what you are eligible for credit-wise. Feel your pain indeed!</p>
<p>Here is a question for next year. In deciphering IRS’s “portion that scholarship REQUIRED you to use for other than qualified education expenses” (i.e., taxable part), on what basis does one define REQUIRED? Example, a school says they will provide a scholarship that COVERS tuition, fees, room, and board. So you will have some that is left over as taxable since only the tuition and fees are QEE for scholarships. BUT, you still will have perhaps several thousand dollars in other QEE (books, special computer or equipment, etc). Can the taxable portion be reduced by the non-tuition/fee part of QEE? </p>
<p>annoying dad - To be clear, my daughter will have a full tuition scholarship. In addition, she is being given $4500 per year for housing. I will do some reading up, thanks for the link.</p>
<p>To all - looks like I really hit a nerve, here. This is another example of the maddeningly convoluted tax system that we have. While I always use a home computer tax prep program, I like to understand WHY, so that I can make intelligent choices. Thanks for all of the info.</p>
<p>@IDMomma - Agree. I use software as well but it is a “black box” and like any such well designed systems, outputs are correct only when you understand how to input correctly. And planning especially takes some extra reading. I helped a coworker earlier this year who did not understand that room and board was a QEE for QTP purposes. By the way, although one really needs to read details in the pertinent sections of 970 as you and @annoyingdad discussed here, the table in appendix B provides a nice quick-look to see “what fits what”.</p>
<p>@OhDad3 - I just printed that appendix B, thanks for the tip. I will probably have to use a tax professional next year, anyway, as I have some issues that come from the settling of an estate that are complex enough to make me want to do that - and I will pay a little extra to pick the person’s brain as to the whys and wherefores, so that I can handle the college credits/taxes myself for 2015, along with my handy-dandy H&R Block program.</p>