How do I answer: Was your earned income more than half your support in 2019?

[leethi1821]

I am a full-time student attending university. I received a scholarship that exceeds my tuition cost. I received about $11,000 for housing and other taxable expenses for school. I also worked in 2019 and earned about $8,000. I took care of all my expenses and did not receive assistance from my parents. 

With my situation, would I consider that I supported myself or no?

I was also wondering will I have to pay kiddie taxes on my scholarship? 

[hbl3973]

leethi1821,

Sorry for the delayed response.  At least nothing is due until July 15th!

The key word is "earned" income.  You total up all your expenses and compare it to what you earned from employment, typically money reported on a W-2 or 1099-MISC.  If that earned money was at least half your expenses then the answer is Yes.

[Carl]

I assume you were an undergraduate as of Dec 31 2019.  Your only "earned" income is $8,000. There's no way on this earth that you provided more than half of your own support with only $8K of earned income. Therefore, you do not qualify to claim yourself as such. That means your parents' qualify to claim you as a dependent on their tax return. For your parents, the key word is *QUALIFY*. It does not matter if they actually claim you or not. You have no choice and *must* select the option for "I can be claimed on someone else's return". Again, it doesn't matter if "someone else" actually claims you or not.

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

Now there are two separate determinations to be made here.

• Who claims the student as a dependent.
• Who reports all the education expenses and claims all the education credits.

First, who claims the student as a dependent?

If the student:

Is under the age of 24 on Dec 31 of the tax year and:

Is enrolled in an undergraduate program at an accredited institution and:

Is enrolled as a full time student for any one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:

the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

Then:

The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”.  To reiterate:

If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.

Who reports all the education expenses and claims all the credits?

If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:

The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent, then:

The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return.

.If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses,  then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

 If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s investment income exceeds $1,050 or if the student’s earned income when added to the excess scholarships/grants does NOT exceed $12,350 for the 2019 tax year, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $12,350, then the student should file a tax return so as to get those withheld taxes refunded.

1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to and included in the total on line 7 of the 1040.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is included in the total on line 7..

Finally, out of pocket money is applied to qualified education expenses

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

[Hal_Al · Accepted solution]

There are two possible issues***, in your question.

1. Did you provide more than half your own support WITH EARNED INCOME.  This determines if you are subject to the "kiddie tax" and whether you are eligible to claim the refundable portion of the American Opportunity credit.

2. Did you provide more than half your own support, by any means.  This, plus two other tests* determines whether you can be claimed as a dependent by your parents. 

The answers to both questions is no.  Scholarships are not earned income.** Your scholarships, alone,  exceeds your earned income, so the answer to #1 is no.  Scholarships are considered third party support, and not support provided by the student, so the answer to #2 is also no.

*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 considered third party support and not as support provided by the student. Note that there is no requirement that the parent provided any support at  all; only that the student didn't provide more than half his own support. 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.
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

**Scholarships are not earned income for most tax purposes, including the ones above. But, scholarship money is treated as earned income for purposes of calculating a dependent's standard deduction.

***There's third issue, this year; eligibility for the stimulus payment.  A dependent, or someone who CAN be claimed as a dependent, is not eligible for his own $1200.

[Carl]

If you were a full time student for at least two semesters in the tax year, then I seriously doubt you made enough "earned" income to provide even a quarter of your support - much less half.

If you were a full time student for only one semester in the tax year, then it's still questionable. Especially if you had third party income from things like scholarships, grants, 529 distributions, money or non-monetary support from parents, etc.

Usually, when an undergraduate claims to have provided more than half of their own support for the entire year, that student can expect to be questioned on it by the IRS about 24-36 months after such tax return is accepted by the IRS. Three "golden rules" to keep in mind when dealing with taxes and the IRS:

1) You are guilty until proven innocent.

2) The burden of proof is on the accused (thats you!) and not the accuser.

3) If it's not in writing, then it *did* *not* *occur*.