Q. If line 5 on the 1098T is greater than line 1, does the student need to file a separate tax return?
A. Simple answer: No, unless the difference between line 5 and line 1 is more than $14,600 (2024 threshold).
A student, with no other income, can have up to $14,600 of taxable scholarship (in 2024) and still pay no income tax (therefore not have to file a return). If he has other income, whether he has to file depends on the source and the amount of the other income.
You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return. If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2024 if he had any of the following:
- Total income (wages, salaries, taxable scholarship etc.) of more than $14,600.
- Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1300.
- Unearned income over $450 and gross income of more than $1300.
- Household employee income (e.g. baby sitting, lawn mowing) over $2600 ($14,600 if under age 18)
- Other self employment income over $432, including money on a form 1099-NEC
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.
