Kiddie tax for independents ?

[FifaStudent]

Hello ,

I was wondering if the kiddie tax applies to student Independents( Parents can’t claim me ) . I worked a part time job and got $7000 from a scholarship but got left over  $4000 after tuition . How is the unearned income taxed ? 
thank you 

[rjs]

The rules for kiddie tax are not affected by whether your parents can claim you as a dependent or not. So yes, it applies to you even if they cannot claim you.

The first $2,200 of your unearned income is taxed at your regular tax rates, the same as income from your job. Your unearned income above $2,200 will be taxed at higher rates. For 2019 you have a choice of using your parents' tax rate or the rates for trusts and estates. Using your parents' rate (which TurboTax calls the "pre-TCJA rules"), is usually the best choice. If you choose to calculate the tax at your parents' rate, you will need some information from your parents' tax return.

[FifaStudent]

@rjs  can I still use my parents tax rate even though I’m not there dependent anymore ? 

[rjs]

Yes, you can use your parents' tax rate. Kiddie tax is not affected in any way by the fact that you are not a dependent. It's not taken into consideration at all.

[Hal_Al]

Why is it you think your parents can't claim you?  Scholarships are considered third party support and not support provided by the student.

There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit. They are interrelated but the rules are different for each.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support.

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.
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

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.

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12,200), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.  TT will check that box on form 1040.

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.

With the tax law change, effective 2018, most students will get the same refund whether they claim themselves or not. The personal exemption has been eliminated and the standard deduction increased.

[Carl]

I worked a part time job and got $7000 from a scholarship but got left over $4000 after tuition . How is the unearned income taxed ?

If you only earned $7000 at a part time job in 2019, then there's no possible way on earth that you provided more than half of your own support. More than likely, your tuition alone was more than $7K for the year. So your parents qualify to claim you as a dependent on their tax return.

Now understand the key word in the IRS rules is *QUALIFY*. It flat out does not matter if your parents actually claim you as a dependent or not. They "qualify" to claim you. So while your parent's have a choice to claim you or not, *YOU* do *NOT* have a choice and must select the option for "I can be claimed on someone else's tax return".

The scholarship money that was not used for qualified education expenses, but instead refunded to you, is subject to the kiddie tax. Period. Again, it's doesn't matter if your parents actually claim you or not.

Once you have completed your tax return you will note the refunded scholarship money is included in the total on line 9 of the SCH 1 which gets transferred to line 7a of the 1040 with an annotation of "SCH" next to it.