My dependent daughter is a full-time student in her freshman year of college starting in Fall 2021. She is on a full athletic scholarship. The school did not send her a 1098-T (it appears it isn't required under 1098-T rules) W-2 or any other IRS form, but they did send a "Statement of Athletic Aid" that shows amounts for 2021 Tuition, Room & Board (approximately $7,300, which includes a small cash stipend paid out to her) and Books. I understand the Room & Board portion is taxable while the tuition and books are considered Qualified Tuition and Related Expenses and are therefore not taxable. Aside from this scholarship, my daughter had zero income in 2021. Does my daughter need to file a tax return to report the room and board income? Or, since it is below the $12,250 standard deduction, is she able to not file in 2021? In 2022, she will have attended a full year of college, and the Room & Board amount will be triple (school is on the quarter system), so I think she will have to file then as it will be approximately $22,000 in taxable Room & Board, which is above the standard deduction amount.
Q. Does my daughter need to file a tax return to report the room and board income?
A. No. As you surmised, the taxable amount (apparently around $7300) is under the $12,550 filing threshold.
Q. In 2022, she will have attended a full year of college, and the Room & Board amount will be triple (school is on the quarter system), so I think she will have to file then as it will be approximately $22,000 in taxable Room & Board, which is above the standard deduction amount?
A. That is correct.
Note: Scholarship income is a hybrid between earned and unearned income. It is earned income for purposes of the $12,550 filing requirement and the dependent standard deduction calculation (earned income + $350). It is not earned income for the kiddie tax and some other purposes. She will be subject to the kiddie tax in 2022, wherein a portion of the student's income is taxed at the parent's marginal tax rate.
A return must be filed if any of the following apply for a dependent:
1. Your unearned income was more than $1,100.
2. Your earned income was more than $12,550.
3. Your gross income was more than the larger of—
a. $1,100, or
b. Your earned income (up to $12,200) plus $350
You can quickly run through the IRS quiz Do I Need to File a Tax Return? to verify each year.
References:
IRS pub 501 - page 4
IRS pub 970 - page 7
IRS pub 17 - page 75
According to the tables, the scholarship income is taxable earned income and therefore not required to file this year.
Thanks @Hal_Al for your great answer!
Q. Does my daughter need to file a tax return to report the room and board income?
A. No. As you surmised, the taxable amount (apparently around $7300) is under the $12,550 filing threshold.
Q. In 2022, she will have attended a full year of college, and the Room & Board amount will be triple (school is on the quarter system), so I think she will have to file then as it will be approximately $22,000 in taxable Room & Board, which is above the standard deduction amount?
A. That is correct.
Note: Scholarship income is a hybrid between earned and unearned income. It is earned income for purposes of the $12,550 filing requirement and the dependent standard deduction calculation (earned income + $350). It is not earned income for the kiddie tax and some other purposes. She will be subject to the kiddie tax in 2022, wherein a portion of the student's income is taxed at the parent's marginal tax rate.