taxable scholarships

[Gretel]

go on line 7. Does this automatically mean that this is considered earned income for purposes of increasing the standard deduction for a dependent?

[Nashville]

I think So

I believe this is earned income for any purpose whatsoever.

Just make sure the scholarship is attached to work and qualifies to be put on line 7 instead of just reducing the tuition expenses for Education credits.

[Gretel]

Why would there be a difference, I thought any taxable scholarship needs to be reported on line 7. This scholarship is moved to student's income to maximize AOC for parents. Just showing my ignorance, I guess.

[Nashville]

Scholarships

Not all scholarships are taxable income. In order to be income, the amount has to be attached to some measure of work - either for the university or under work/study program.

For example, a typical academic scholarship to simply apply against tuition is not considered "work" - although the student may toil for hours studying. Often a 1098-T shows a "grant" - which is nothing more than a gift from some kind of fund which finances education for that purpose.

For example, the math works beautifully by taking a scholarship, showing it as income, taxing the student at a maximum of 10-15%, then taking a huge educational credit of some 20% or more. But it is not allowed if the scholarship is not attached to some kind of work.

[Gretel]

Ok, the 1040 TTB pg. 12-7 only distinguishes between restricted and unrestricted scholarships/grants. Most of the scholarships/grants for my student are restricted to be used for tuition, books, etc. $500 is not restricted - just free money.

Why can't I use this $500 as income to the student and thereby increase the AOC for the parents. Do I misunderstand TTB?

[Golden Rocket]

I think so

Gretel, I don't conclude from TTB the same as you do.

A grant is a gift. Certainly not "income" in the sense of any gift, and DEFINITELY not earned income.

The "restricted" versus "unrestricted" continuum is not the same as the "income" versus "not income" classification.

[Gretel]

Gretel, I don't conclude from TTB the same as you do.

A grant is a gift. Certainly not "income" in the sense of any gift, and DEFINITELY not earned income.

Pub. 970, pg. 6 says that a need based grant is treated the same as a scholarship. Meaning, in my opinion, that it depends on how funds were used if it is taxable or not.

The "restricted" versus "unrestricted" continuum is not the same as the "income" versus "not income" classification.

I agree that just because a scholarship is unrestricted doesn't make it automatically taxable. Again it depends on how the funds are used. I believe the student can use an unrestricted scholarship for non-qualifying expenses, include the amount in income and free some of the qualifying education expenses for their parents to use for AOC.

Question still remains if a need based grant that is used for room and board is earned income. and if not, why not if to be reported on Line 7 and Pub. 970 says is same as scholarship. I am looking for guidance and wonder if I am off with my thinking.