AOTC Education Credit help with R&B Allocation

[MidMoMom24]

@Hal_Al 
Hello, 

If possible could you please give your input if I have done this correctly to claim the AOTC? 

I am trying to claim the AOTC credit for my student that is in their third year of college. 
Our 1098 T info:
BOX 1: $51,369 .00
BOX 5: $52,425.00

Student at least half time: X
[The rest of the blanks on the form are empty.]

QEE (books): $23
Room & Board amounts paid for the 2025: $9,509
Scholarship Amount restricted to Tuition ONLY: $36,050

Can we allocate $5,035 of his scholarship money (the best I can tell this is the amount needed to receive the full AOTC credit) to his room & board and claim that for my students income? (They earned $5,977.60 over summer with research position at a college in PA  (students lives and goes to college in MO the rest of year), they received a W2 for this PA job and that was their only income - so even with the $5,035 that's not enough for them to be *required* to file their taxes, correct? But I think we will to have a record on file and receive the small refund he would get from PA.) 

This gives me the following: 
Education Credit $1,500 

Refundable American Opportunity Credit $1,000

For a total of $2,500

Does this look correct? Or do I need to do something differently? 

Adding both amounts I get a total income of $11,012.60 for my student, which is below the standard deduction I believe. Also, I would like to file taxes for them to be able to receive the $367 they paid into PA. I believe we file for both states: PA & MO (no MO income or refund). Best I can tell they will receive $0 from both states, but $367 from Federal refund. Does this sound accurate or I have made a mistake somewhere or need to do something differently? This is the first year we have out of state (PA) income, so that is new for me.

Editing to add: Our student was refunded $1,056 in scholarship money, after all fees were paid. I am not sure if that needs to be added anywhere? Or if its already a "known" since its evident from the 1098T that they received more $ in scholarship than qualified tuition.

Thank you in advance.

[Hal_Al]

Q. Can we allocate $5,035 of his scholarship money to his room & board and claim that for my students income? 

A. Yes (I quick calculated $5033).

Q. Adding both amounts I get a total income of $11,012.60 for my student, which is below the standard deduction I believe that's not enough for them to be *required* to file their taxes, correct?

A. Correct, for federal. I'm not specifically familiar with PA & MO rules (other than PA has a ridiculously low filing requirement).

Q. This gives me the $2500 total and maximum American Opportunity Credit $1,000. Does this look correct? 

A. Yes. Well done.

Q.  Also, I would like to file taxes for them to be able to receive the $367 they paid into PA. I believe we file for both states: PA & MO (no MO income or refund). Best I can tell they will receive $0 from both states, but $367 from Federal refund. Does this sound accurate or I have made a mistake somewhere or need to do something differently? 

A. Yes that is basically correct. Although you say $367 paid to (into?) PA then say $367 federal refund.  You probably need to file both states. If you had no PA tax withheld, you will probably owe PA. MO will give you a credit, or maybe a partial credit, for any tax paid to PA. 

Q. Our student was refunded $1,056 in scholarship money, after all fees were paid. I am not sure if that needs to be added anywhere? 

A. No. It's already accounted for in the $5035 of scholarship he is reporting as income.  You do not go by the amount of cash received. You go by the balancing of total scholarship and qualified expenses, which you have done. 

[Hal_Al]

For quick links to State Filing Requirements: https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-return/need-file-state-return/L446Rv...

[MidMoMom24]

@Hal_Al 

Thank you so much! Yes, likely your $5033 is most accurate, as I was going back and forth with amounts until I reached the $5035 (I started with $9k and reduced until it gave less than $2500 then went back up). Should I go back and correct the amount to $5033? I am not sure how much difference it makes, but I am happy to go back and do it before submitting if it does.

Sorry, yes the $367 was the federal income taxes withheld on the W2.

Our student did have deductions from the state of PA.

I am a bit confused by their deductions (as I am used to MO). There was two W2 forms mailed, one copy for MO taxes (with state income tax boxes left blank) and one copy for PA., where there are two different amounts withheld for state & local income tax for PA listed on the W2: 
State Income Tax: $184,14
Local Income Tax: $205.98

Locality Name: Philadelphia (lived and worked at the campus in Philly for 10 weeks)

Based on what I have figured currently its says $0 refund for state of Missouri and $0 refund for State of Pennsylvania. So that is where I am unsure if I have done something wrong? I don't expect a refund from MO (due to not having any income) but thought there might be something from PA, but the software so far is saying $0.

Thanks again! Appreciate you.

[Hal_Al]

Q. Should I go back and correct the amount to $5033? 

A. No, it will make no difference on either your return or any of his. 

Q. I am a bit confused by their deductions?

A. You can ignore the local (Philadelphia) deductions (withholding). It's just something they do in PA.  There's no local filing required and there's no chance of a local refund. 

Q. Based on what I have figured currently its says $0 refund for state of Missouri and $0 refund for Stat of Pennsylvania. So that is where I am unsure if I have done something wrong?

A. That's expected for MO.  I don't know enough about PA tax rates, but suspect it's "close enough" for the situation.  I'd trust the software. 

Q.  I don't expect a refund from MO (due to not having any income).

A. Yes, but it's not because you don't have income. You do have MO income.* It's because you had no MO withholding.  You coulda owed MO tax, but the credit for the tax paid to PA must likely wiped out your MO tax.

*State tax general rule. The general rule is (and it applies, in your case): your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state. You will have to file a non resident PA state return and pay PA tax on the income earned there.. You will also file a MO full year resident return and calculate tax on ALL your income. MO will give you a credit, or partial credit, for the tax you pay PA. So, there will be little or no double taxation, but you have the cost and hassle of filing two state returns. Do the nonresident state return first.   Doing the returns in the correct sequence insures that your MO return will include the credit for the tax you pay to PA.

[MidMoMom24]

@Hal_Al 

Ahh, yes. Good catch... And that's exactly what I meant, no MO withholding. 🙂

Ok. I believe I did the non-resident state return first, but I'm not 100%. Is there a way to go back and check which one I entered first without redoing? Or a section in the forms where I can check for a credit from Missouri? 

And yikes! $33 is the income required to file for PA. Would never have guessed that! 

[Hal_Al]

Q. Is there a way to go back and check which one I entered first without redoing? Or a section in the forms where I can check for a credit from Missouri? 

A. Just check for the MO credit. I'm not familiar with the MO forms, but it should stand out.  The fact that you owe no MO tax almost certainly means you got it. 

[MidMoMom24]

Awesome! Will do. 

Thanks so much!