How do we enter scholarship exceeding tuition on both the child and parent tax forms?

[tonybeo]

And one more link that may help clarify:

https://www.irs.gov/pub/irs-utl/Pell%20AOTC%204%20pager.pdf

[Carl]

@tonybeo Your link to journalinfoaccountancy.com really holds no legal weight, because it's not an official IRS website. It's the interpretation of the IRS regs by a non-IRS individual or entity. Whereas the link to the IRS website does hold weight. In fact, it holds all the weight.

In a nutshell, either way you go doesn't matter to the IRS. But it could matter to you. You just have to pick the way that is more beneficial to you. If you get more money with a tax credit, than what you pay in taxes by declaring it used for non-qualified education expenses, then go that way.

Otherwise, if you pay less in taxes by declaring it for qualified expenses, then go that way. Either way, the IRS gets their cut and you get your tax break. It's just a matter of selecting the best option for you.

Of course, if the student qualifies to be claimed as a dependent on the parent's tax return, that's the parent's choice. The student has no choice really.

Glad to have that IRS link now, because it explains it in plain english without all that IRS tax speak gobble-de-gook.

[tonybeo]

Hal_Al,

Thanks again for this info.  So the 1098-T would be entered on both the parent and the child's return?  I thought it was only entered on the parents return?

[tonybeo]

Thanks,  So you are saying that if total income (with scholarship income and W-2 income for child) is less than 12,200, then there will be no income tax on that due to the standard deduction but there will be a calculated kiddie tax based on the unearned scholarship income that was added to her W-2?

Thanks.

[tonybeo]

Hal_AL,

Can you comment on how adding taxable scholarship income to a child's return would affect the premium tax credit on my return?  That form asks for the MAGI of the parents and the child.  Would that taxable scholarship income be included in her income for the purposes of that form?  If so, it would change the total family MAGI that was projected for 2019 and result in us having to pay back some of that credit.

Thanks.

[Carl]

Can you comment on how adding taxable scholarship income to a child's return would affect the premium tax credit on my return?

Here's what I know, and it may not be all inclusive.

First, I assume you have a college student that qualifies as your dependent, and you are "in fact" claiming them as your dependent on your tax return, as you should.

I assume that the total amount of scholarships, grants and any 529 distributions received in 2019, exceed the qualified education expenses paid with that income received from a 3rd party source.

If my assumptions are correct, then you the parent's will still claim the student as your dependent, and you the parents will *NOT* report one single thing concerning education on your tax return.

The student will report all the education stuff on the student's own return *IF REQUIRED*. It is required for the student to do this *IF* the total of the student's earned income (W-2, 1099-MISC, self-employed) plus the student's investment income (1099-INT, 1099-DIV, etc) plus the students taxable portion of all scholarships, grants, 529 distributions exceeds $12,300.

It is also required if the student's investment income alone exceeds $1,050.

So my first question to you is, is the student required to file a tax return?

[tonybeo]

Thanks. 

She had 16,501 of total income but 9,799 of that was from the taxable scholarship.  We were looking at 2 scenarios to see which one was the best situation.  She supported herself a good bit so we could either claim her as a dependent or not.  One option is we claim her as a dependent and we claim the 1098-T on our return the other option is she claims herself and the 1098-T on her return.   

If we claim her as a dependent, don't we have to claim the AOTC on our return?  Or are you saying that we cannot claim her as a dependent if her income if over a certain amount?

Thanks.

[Carl]

She had 16,501 of total income but 9,799 of that was from the taxable scholarship.

There's no way possible that the student provided more than half of their own support. There are only two possible ways the student can have a valid claim to providing more than half of their own support for the entire year.

 - The student had a W-2 job or was self-employed, and the "EARNED" income exceeds half of their "support" expenses. In your case, there's no way the student's $6.702 of earned income was enough to provide more than half of her own support.  So with that, she qualifies as your dependent.

 - The student was the *PRIMARY* borrower on *qualified* student loans, and a sufficient amount of that borrowed money was distributed to the student in the tax year, to cover more than 50% of their support.

So in your case, the student does not have a choice here and "MUST" select the option for "I can be claimed on someone else's return". But you the parent do have a choice to claim the student or not. But it doesn't matter if you don't claim the student as your dependent. The student has no choice and must select the option to indicate they can be claimed on someone else's tax return. Period.

So from the numbers provided, is $9,799 the taxable "portion" of the total scholarship received? Or is it the total scholarship received? I asked, because all scholarship/grant money received is treated as taxable income "initially". It's taxability is offset by the qualified education expenses they are used to pay for.

I know you're initial question is about the healthcare stuff, and I've not forgot that. I just need to help you work out if you are going to claim 100% of the premium tax credit, or if you have to pay back that percentage of the credit that applies to your student, and your student get's the credit for that on their own tax return. The first order of business to that end, is to determine if the student is "required" to file a tax return.

If $9,799 is the total amount of all scholarships, grants, 529 distributions received by the student, and that total exceeds the total of all qualified education expenses, then it "sounds" to me like this could go either way on the student's tax filing requirement.

I'm trying to make sure without a doubt, that I have the entire picture here. That premium tax credit thing can be tricky. So we have to "know" we have this right. I can't be guessing here.

[Carl]

I just realized I"ve been going around my elbow to get to my thumb. Lets stop that and give you the two basic scenarios.

If the student is "NOT" required to file a tax return and the student *WILL NOT* be filing a tax return, then the parents will claim 100% of the 1095-A for the PTC. Period. End of story.

If the student *is* required to file a tax return, or if the student is not required to file at tax return but *WILL* file a tax return for the sole purpose of getting with held taxes refunded to them, then the student "MUST" include their percentage portion of the 1098-A on their tax return. Here's how it works.

Lets assume there are only 3 people covered on your Marketplace policy. You, your spouse, and your student. That means that each of you individually is entitled to 1/3 (33%) of the PTC.

YOu will file your joint tax return claiming 66% of the policy. That means you only get 66% of the PTC. So you'll have to "pay back" 34% of it. (Totals *must* come out to 100%, so that's why "someone* gets 34%)

The student will also file the same exact 1095-A claiming 34% of the PTC. That 34% will be added to the student's refund (or reduce their tax liability accordingly.)

So you will need to provide your student a copy of that 1095-A.

Whew! Does that clarify and answer your base question now?

[tonybeo]

Thanks Carl,

She had 11298 in tuition and 814 in books and 17911 in scholarships.  So total QEE's are 11298 + 814 = 12112. Subtract that from 17911 to get 5799 of scholarships above QEE's.  Then add 4000 of the scholarships (to be applied to living expenses) to the 5799 to get 9799 of taxable income. 

Thanks

[tonybeo]

Thanks again Carl,

Note that my daughter is not covered under our marketplace insurance policy.  Only me and my wife are covered on the policy but the premium tax credit tax form still asks for the MAGI of the dependent (even though that dependent is not getting insurance).  

Thanks.

[Carl]

If she is your dependent, then her income counts for "household income".

As a clarifier here (mainly for others reading this) if you qualify to claim the student as your dependent, the student has *NO* *CHOICE* must select the option for "I can be claimed on someone else's return" when/if the student files their own tax return. It does not matter if the parents actually claim the student or not.

The parents *DO* have a choice, and do not have to claim the student is they don't want to. However, if they do not claim the student, then the parents can not take *ANY* of the education credits for that student either. That means the student will claim all the education stuff on their own return, no matter what.

But it does not change the fact that the student is still required to indicate they can be claimed on someone else's tax return. That means the student will NOT qualify for anywhere near the education tax breaks that the parents would, if the parents claimed the student.

[tonybeo]

Thanks.  Also note that when she did a draft of her return and selected that she "could" be claimed by someone else but then answered no when asked if that "some else" was claiming her, the result was that she was not eligible for and AOTC after the 1098-T was entered.

Thanks.

[Carl]

Also note that when she did a draft of her return and selected that she "could" be claimed by someone else but then answered no when asked if that "some else" was claiming her, the result was that she was not eligible for and AOTC after the 1098-T was entered.

She answered both questions correctly. The ineligibility for the AOTC is for other reasons. Most likely, it's because she doesn't have the "earned" income to claim it against. Or the total of all scholarships/grants covers or exceeds qualified education expenses already. Remember, because of how she correctly answered the questions, her first $12,300 of "earned" income is already excluded from tax.

Now there is a part about the refundable portion, and non-refundable portion of the AOTC that I don't fully comprehend. But I think @Hal_Al has more insight on that than I do.

[Hal_Al]

The fact that she can be claimed as a dependent, disqualifies her from the refundable portion of the AOTC.