Yes, it is taxable income. But the standard filing threshold still applies. That is, he/she doe not need to file at tax return if he has less than $6300* total income. ($12,000 in 2018)
He actually may want to report more of his grant as taxable. There
is a tax “loophole” available. The student reports all his scholarship, up to
the amount needed to claim the American opportunity credit, as income on his
return. That way, the parents can claim the tuition credit on their return.
They can do this because that much tuition was no longer paid by "tax
free" scholarship. You cannot do
this if the school’s billing statement specifically shows the scholarships
being applied to tuition or if the conditions of the grant are that it be used
to pay for qualified expenses.
*Full filing Requirements for dependents
1. Total income (wages,
salaries, taxable scholarship etc.) of more than $6,300 (2016).
2. Unearned income (interest,
dividends, capital gains) of more than $1050 (2016).
3. Unearned income over $350
and gross income of more than $1050
4. Household employee income
(e.g. baby sitting, lawn mowing) over $2000 ($6300 if under age 18)
5. Other self employment
income over $400, including box
7 of a 1099-MISC
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.
He doesn’t get his own $4050 exemption
(deduction), when he files. In TurboTax, he indicates that somebody else can
claim him as a dependent, at the personal information section.
