My 21 year old full-time student received a scholarship and stipend. It is all reported on her 1098-T. Her income from this is @$21,000. This is her only income, so TurboTax is asking for our (her parents) taxable income since it is unearned income. Should she file her own return with this, or can it be added to our return since she is still a dependent and this is her only income? Since she will be taxed at our rate I'm not sure what the difference is if she files her own return.
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No, your daughter must file her own return for the reason noted below.
In addition to being a qualifying child dependent, the child has to meet the following conditions:
For more information you can review this link: Should I include my dependents income on my tax return?
Q. Should she file her own return with this, or can it be added to our return since she is still a dependent and this is her only income?
A. Because of the type of income, she must file tis on her own return. But it turns out, that's a good thing.
Q. Since she will be taxed at our rate I'm not sure what the difference is?
A. She gets a $13,850 deduction before tax kicks in.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.
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