Excess of Grants over Education Expense

[alielgaili]

Hello,

My wife and I are filing a joint return. Both my wife and son attended college and received Pell Grant. Their Grants amounts have exceeded their Education Expenses. Turbo Tax has included the extra amount as other income for my wife but not my son.  Is any explanation for this?

Has form 1040 been updated with regards to the extra portion of scholarship reporting? Last year used to be reported as SCH, but this year, OTHER INCOME?

[KrisD15 · Accepted solution]

Scholarship income is reported on Schedule 1. 

The excess income your son received is his income, so he would need to claim that portion.

Depending on his income, he may or may not owe tax on that income so he may or may not be required to file a tax return.  

According to the IRS:

"Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, include any taxable amount reported to you in box 1 of Form W-2 in the total on line 1a. Include any taxable amount not reported to you in box 1 of Form W-2 on Schedule 1 (Form 1040), line 8r."

Pub 970

[Hal_Al · Accepted solution]

Your son's excess scholarship is taxable TO HIM. It does not go on your tax return.

If the taxable amount is less that $12,950 and he has not other income, he does not need to file a tax return. 

If he does have other income, $12,950 total income is still the filing requirement, unless that other income is unearned income (e.g. interest, dividends, capital gains).

[alielgaili]

• Is excess scholarship amount considered unearned income (Passive Income)? 
• Last year excess scholarship amount was reported as SCH. Has year 2022 reporting changed to OTHER INCOME?

[Hal_Al · Accepted solution]

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the  $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400)..  It is not earned income for the kiddie tax other purposes (EIC, IRA contributions or additional child tax credit).

New for 2022, the income goes on line 8r of Schedule 1.  In the past it went on line 1 of form 1040 with the SCH notation.  There is no change in treatment (it's earned income for the standard deduction).