1098 t scholarships more than tuition

[gman]

Taxpayer claims daughter on tax return. Daughter recieves 1098 t with box 5 scholarships and grants about 2500.00 more
than tuition. Daughter does file own return with some small wages.

Is any of this taxable and to who?

thank you

[Golden Rocket]

Could be Advantageous

If the "scholarships/grants" are for money actually "worked for", it could be to the advantage to claim the entire amount as income.
And then calculate the entire amount of tuition for the credit. In order for this to work out, the party claiming the income must be in a tax
bracket sufficiently low such that the credit will more than offset the income. For "Lifetime Credit" the tax bracket must be no more than 15%.

As to whether scholarships/grants can be claimed as income, that is not always an easy answer and beyond the scope of this discussion.

[FEDUKE404]

Scholarship amounts CAN be taxable

Taxpayer claims daughter on tax return. Daughter recieves 1098 t with box 5 scholarships and grants about 2500.00 more
than tuition. Daughter does file own return with some small wages.

Is any of this taxable and to who?

thank you

First thing you need to do is to be sure the Form 1098-T is not crossing years, i.e. scholarship amount came "late" for qualifying expenses claimed (without scholarship reduction?) in a prior year. As has been stated numerous times on these boards, you need to track the payments and pay minimal attention to the overall accuracy of any Form 1098-T.

Once this issue is resolved, if the scholarship amount covers things more than qualifying fees/etc (such as a "full" scholarship that covers room/board), then the student could easily have taxable income from the scholarship. That income is reported on line 7 of Form 1040, with the required annotation "SCH 1234" to show the amount of taxable scholarship income included with wages on line 7.

As a side issue, FWIW there is also now a strong possibility income from a taxable scholarship could generate kiddie tax (Form 8615) for the dependent.

FE

[gman]

Taxable to who

If any of it is taxable, would it go on childs return or parent who claims child?

thank you

[JohnH]

That's a question I'm struggling with right now. I have one who received so much in scholarship money at a private school that the parents' ability to claim him as a dependent might be in jeopardy. Had to extend both his return and the parents' return just to think this through.

[Burke]

The taxable income determined by excess scholarships goes on the child's return. Even if the parents claim him as a dependent on theirs. It will be considered unearned income for purposes of Form 8615 (kiddie tax.)

[ATSMAN]

Did room and board, books and other mandatory fees use up that $2500? If it did I don't think you have to report that as additional income.

[FEDUKE404]

What ?

Did room and board, books and other mandatory fees use up that $2500? If it did I don't think you have to report that as additional income.

Ah, scholarship reimbursements for room/board generally constitute taxable income. . .

. . . and definite exposure to kiddie tax.

FE

[Burke]

It is becoming more and more common for this to happen. Especially in the freshman year of college. The institutions often load up the scholarships for the first year in order to retain the student, with addl scholarships reducing in amounts for the subsequent years. You really do have to allocate the granting of these to the proper semester when it spans different tax years.
For instance, scholarship may be awarded in Dec for the subsequent spring semester. Or scholarship may be applied in the spring semester of the senior year, when the tuition was billed in the prior year. Only way to do this to the best advantage of the taxpayer is to get a detailed transcript to determine when tuition was paid and to which semester the scholarships apply.
My local community college no longer shows what was billed, which is useless for the tax return, only what was paid during the year. That's a big help. I don't even know why the "billed" amount is even on the form.

[Gary2]

That's a question I'm struggling with right now. I have one who received so much in scholarship money at a private school that the parents' ability to claim him as a dependent might be in jeopardy. Had to extend both his return and the parents' return just to think this through.

Pub 501 (and Pub 17) point out that scholarships aren't taken into account for the support test. However, because they rush past this point (it's just one sentence), I'd suggest more research to see whether it applies to all scholarships or just the non-taxable part of scholarships.

[gman]

thank you

thanks for all your help.

[Kram BergGold]

Not subject to Kiddie Tax

Taxable scholarships go on line 7 of form 1040 and are not subject to kiddie tax.

[TaxGuyBill]

Taxable scholarships go on line 7 of form 1040 and are not subject to kiddie tax.

I agree with Line 7 of Form 1040, but disagree with it not being subject to Kiddie Tax.


Kiddie Tax is based on AGI "which is not attributable to earned income", which is defined in §911(d)(2).

http://www.law.cornell.edu/uscode/text/26/1#g_4

http://www.law.cornell.edu/uscode/text/26/911#d_2

[FEDUKE404]

Taxable scholarships and kiddie tax

Taxable scholarships go on line 7 of form 1040 and are not subject to kiddie tax.

You may wish to review the relevant rules for application of kiddie tax.

From 2013 IRS Form 8615 instructions:

Unearned Income

For Form 8615, "unearned income" includes all taxable income other than earned income as defined later. 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, unemployment compensation, alimony, and income (other than earned income) received as the beneficiary of a trust.

FE