21 year old stressed over taxes on scholarships. How do I proceed?

[TaxGuyBill]

It is likely you with owe NOTHING, or very little for your Federal tax.  However, it may be tricky to enter into TurboTax.

$6350 is the Standard Deduction (in most cases), so pretty much everybody gets that deduction.  So of your $11,995 of taxable scholarships, that $6350 reduces that to $5645.  But I'm going to change that a little later ...   🙂

You are subject to the "Kiddie Tax", which taxes your scholarships at your parents' tax rate.  So in most cases, that puts you in a higher tax bracket.  As for what your parent's tax bracket is, that depends in if they are married (and if they are, did they file a Joint tax return or Separate tax returns) and who you lived with.  If you want a closer estimate, please answer that, and give their ROUGH amount of income.


Assuming you meet the qualifications of the American Opportunity Credit, you will want to INTENTIONALLY make $2000 MORE of your scholarship taxable (possible more than $2000, depending on the results and your parents' tax bracket).  Yes, that will increase your tax.  But it also will qualify you for the non-refundable portion of the American Opportunity Credit, which will greatly reduce or eliminate your tax.  So it is very likely you will owe no FEDERAL tax at all.  Because you live in Texas (and assuming your parents do too), you won't have any State income tax to deal with either.

[bridan121895]

@TaxGuyBill if the process involves contacting my parents to do any portion of work, that is out of the question. I am unsure of what my father makes and I will most likely not be able to find out. I also do not understand how I could make $2000 more of my scholarship taxable. Sorry for the misunderstanding; engineering major haha!

[TaxGuyBill]

Are your parents married?  Do you have any GUESS for roughly how much income they had?

Your last comment about your parents seems to imply that you may have absolutely PERMANENTLY moved out of their home.  Does that seem correct for 2017 (the year in question)?  If so, they can NOT claim you as a dependent, which reduces your 2017 taxes even more.

As for how to make $2000 more of your scholarship taxable, that is just some manipulating of the numbers on the tax return (a legal 'loophole').

[bridan121895]

No, they are divorced. My father will not tell me what he makes because we are not speaking. I do stay with my mother over winter and summer break but she did not pay for any of food, living, or expenses while in school (2017). Could this potentially mean that they could not claim me? If you read @Carl comment up top though, since I used my refund to support myself, I believe that means that can claim me as a dependent since I did not have any other source of income.

[bridan121895]

@Carl

[TaxGuyBill]

Okay, they are divorced and you live with your mother.  That means your mother can claim you as a dependent (the scholarship does not count as you paying for yourself).  That means the "Kiddie Tax" is based on your mother's income and tax bracket (which sounds like it may not be particularly high).  If you can not get your exact mother's income on her 2017 tax return, you can enter an estimate (perhaps estimate a little high).

Unless your mother has very high income (which sounds like is not the case), you won't owe any tax (assuming you 'force' the extra $2000 of scholarships to be taxable, so you qualify for the American Opportunity Credit).

The program will ask for your mother's income to determine your tax, but as I said before, if you can't get an exact amount, give an estimate.  As for the 'forcing' of the extra $2000 of scholarships to be taxable, perhaps @Hal_Al  could guide you with that.  Otherwise, you could go to a tax professional.

But again, assuming your mother does not have very high income and that you will qualify for the American Opportunity Credit, you will not owe any tax.


The rules for "Kiddie Tax" changed for 2018, so if you have a similar situation for 2018, you will NOT need any information from either one of your parents for 2018.

[bridan121895]

@TaxGuyBill would you recommend I go to a tax professional for my 2017 situation? I believe I understand what you are trying to say. I will find out my mothers income. I would honestly assume somewhere between $10,000 to $20,000.

[Opus 17]

If @Hal_Al or @Carl wants to check my answer below, and can walk you through how to claim the American Opportunity Credit using the "advanced strategy" in the program itself, then you probably don't need to spend a couple hundred $$ on a tax preparer.  Although you certainly can if you would be more comfortable doing that.

[bridan121895]

@Opus 17  Thank you so much for that. I understand now. However.. how exactly will I enter this information into turbo tax? Also, can I amend my 2017 taxes now, or do I need to wait until I am working on my 2018 also?

[Opus 17]

Why do you say amend?  Did you file a 2017 tax return?  You said you didn't work.

Each tax year is separate.  Income from 2017 must be reported on a 2017 return (original if you never filed one, amended if you filed one without this income).  Income from 2018 must be reported on a 2018 return.  For 2017, you will need the 2017 software, you can do it any time.  For 2018, that's not due until April 15, 2019, and the software probably won't even be ready until February, due to the tax law changes and government shutdown.

[bridan121895]

Sorry I thought amend was the correct terminology. So, to be correct, I simply need to file my 2017 taxes late? I am just unsure how exactly I would enter in the additional $2000 if my 1098 is already filled out from the school stating I received the 13k as a refund.

[Opus 17]

Yes, you would file an original, late 2017 return.  ("amend" only refers to filing a second return to correct a mistake or omission in your first return.)  You will need to purchase Turbotax 2017 as a CD or download to install on your own computer, the online program only does 2018.  You can find it at the Turbotax home page at the bottom under "products for previous tax years."

Let's see if anyone else has experience in entering the expenses to claim the credit.  If no answer by tomorrow, I will see what I can find.

[bridan121895]

@Opus 17 Sounds good. I will get the software tonight and wait to see if anyone can help. Thank you so much all @Carl  @TaxGuyBill

[Opus 17 · Accepted solution]

Here is the simple situation.

1. You have taxable income in the amount that your scholarship is more than tuition plus required fees.  That seems to be $11,995, although maybe there are some fees you didn't account for.  What matters is the tuition you actually paid in 2017, even if it was extra classes that you didn't originally enroll in.

2. This income is considered "unearned income".  That's important later.

3. You need to file a 2017 tax return.  Assuming you are single with no dependent children, you would file as single and check the box for "someone else can claim me as a dependent.

4. You get a $6350 standard deduction, meaning $5645 is taxable.

5. The "kiddie tax" taxes your unearned income at the same rate as your parent, if they claim or could claim you as a dependent.  Normally, this means that parents can't put investments in their children' names to pay lower taxes.  But it also impacts you.

6. Based on your mother's income, that $5645 of taxable income might be taxed at 10%, 15%, or 25%.  It's not likely to be higher than that unless your mother earns more than around $150,000.  10% or 15% is probably more likely.

7. So that might be $565 or $846 of income tax.

8. The late fees and penalties are roughly 1% per month of the amount you are late, in this case, back dated to April 15, 2018, which was the deadline for filing the 2017 return.  So around $100 or less at this point.  Turbotax may offer to calculate the penalty.  Don't take the offer, since the calculation is almost always a few dollars off and the IRS inevitably sends a bill for the rest.  Just pay the tax you owe and let them bill you for the correct penalty.  If this is the first time you owed a penalty, you can request a waiver after you get the bill.  https://www.irs.gov/businesses/small-businesses-self-employed/penalty-relief-due-to-first-time-penal...

Now, there is a more complicated solution.  If you were to report that you paid $2000 in tuition with your own cash, and received a $15K refund instead of a $13K refund, you would show more taxable income and show more income tax owed.  But, you would also qualify for the American Opportunity Tax Credit.  It won't result in a  refund, but it will zero out the tax you owe, meaning you owe no tax and no penalties.  Due to the way the credit works and the limitations because of your age and that you live with a parent, there is no point to claiming more than $2000 of tuition paid. 

This "trick" is completely legal.  However, to use this trick you still have to file a tax return and put it in writing.  If you never file, the IRS will probably get around sooner or later to matching up your form 1098-T in their computer and realize you never filed a return, and send a letter and tax bill.

There are a couple other experts who are probably better at explaining this trick than we are, including how to enter it in Turbotax.

Then for 2018, if you also got a refund in excess of tuition and qualified fees, you get to do the same thing all over again.

[Opus 17]

One other comment.  The American Opportunity Credit is only useable for 4 years, and only usable for your undergraduate education (4 year degree or equivalent).  If you think you might end up taking 5 years to get your bachelors degree, you might not want to use the advanced strategy this year, and save it for a year when you have a job.  But if you think you will finish in 4 years or less, there is no point in not using your eligibility for 2017.