College Student Scholarship

[dcdan05]

Hi All,

My daughter is in college with school scholarship. She has some income in 2021 but is still supported by parents. 

1- Will she need to file tax as independent and report her scholarship? Will her income affect the scholarship?

2- If she is filing, Can parents still claim her as dependent and report scholarship and income?

Thank you.

[ColeenD3]

Yes, if she meets the qualifications, then the parents still claim her. Whether or not it affects her scholarship is not a tax question. If it is based on your income, it may. There are two possible categories of dependents. She would have to qualify for one of them.

Qualifying child

In addition to the qualifications above, to claim an exemption for your child, you must be able to answer "yes" to all of the following questions.

• Are they related to you? The child can be your son, daughter, stepchild, eligible foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, adopted child or an offspring of any of them.
• Do they meet the age requirement? Your child must be under age 19 or, if a full-time student, under age 24. There is no age limit if your child is permanently and totally disabled.
• Do they live with you? Your child must live with you for more than half the year, but several exceptions apply.
• Do you financially support them? Your child may have a job, but that job cannot provide more than half of her support.
• Are you the only person claiming them? This requirement commonly applies to children of divorced parents. Here you must use the “tie-breaker rules,” which are found in IRS Publication 501. These rules establish income, parentage, and residency requirements for claiming a child.

Qualifying relative

Here is a checklist for determining whether a relative qualifies.

• Do they live with you? Your relative must live at your residence all year or be on the list of “relatives who do not live with you” in Publication 501. About 30 types of relatives are on this list.
• Do they make less than $4,300 in 2020 or 2021? Your relative cannot have a gross income of more than $4,300 in 2020 or 2021 and be claimed by you as a dependent.
• Do you financially support them? You must provide more than half of your relative’s total support each year.
• Are you the only person claiming them? This means you can’t claim the same person twice, once as a qualifying relative and again as a qualifying child. It also means you can’t claim a relative—say a cousin—if someone else, such as his parents, also claims him.

[Hal_Al · Accepted solution]

Q. Will she need to file tax as independent?

A. No. Nothing you described requires her to file as an independent.  See details below.

Q.  Will she need to report her scholarship as income?

A. Scholarships that pay for qualified educational expenses (QEE) are tax free. QEE are tuition, fees and course materials (books and a required computer).  Scholarships used for room and board are taxable,  Generally, if box 5 of the 1098-T exceeds Box 1, the student has taxable scholarship. 

Q. If she is filing, Can parents still claim her as dependent? 

A. Yes, see details below.

Q. Do parents  report her scholarship and income on their return?

A. No.  

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 2021 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,550 (2021).
2.          Unearned income (interest, dividends, capital gains, unemployment) of more than $1100.
3.          Unearned income over $350 and gross income of more than $1100
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2300 ($12,550 if under age 18)
5.          Other self employment income over $432, including money on a form 1099-NEC

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

[dcdan05]

Thanks for the response. 

She still files her own tax. Parents are also claim her as a dependent since parents support over 50%.

Is it right?

Thank you.

[PattiF]

Yes, she will file her taxes as a dependent, not claiming herself.

Her parents will claim her as a dependent including the education information on their return.