Question regarding scholarships and taxes owed

[mjmommy2001]

Both my kids have student loans and scholarships.  One has $17025 from scholarships and grants and her payments per 1098-T is $13940.  She only made roughly $3400 this year.  I ran her stuff through turbo tax and it is saying she owes federal $987 and then state is about $613.  Only one of her jobs took out fed taxes in the amount of $3 and the college did not take out any for her job on campus.  Do these numbers even sound right?  We did put down that she paid $5334 out of scholarships for room and board but it just seems like almost $1600 in taxes is a bit much (though that is better than $17K in student loans that she would have to pay if she did not have the scholarships).

My son is kind of in the same situation but his total between fed and state is around $1000.  

[Hal_Al]

Q.  Do these numbers even sound right? 

A. No. 

If  her $3400 of  income was reported on a form 1099-NEC, TurboTax will treat that as self employment and "self employment (social security & medicare)  tax" (SET )  will be due.  But still not $1600.

Otherwise, you are correct $3400 of W-2 wages + $5334 of taxable scholarship is not enough (less than $12,550) to generate any  income tax.  You've entered something wrong.  Review form 1040 and schedule 1 to see where it is being reported.  Both wages and taxable scholarship should show up on line 1 of form 1040. 

[mjmommy2001]

So somehow her line 1 is $20752 so I am thinking somehow I got the wages and her scholarships as income?  I put down that she got $17025 in scholarships and then later how much she had for room and board.  Please, how do I correct this?  I will be looking over their returns later today.  

[mjmommy2001]

I am looking and I see on the earned income worksheet, line 11, I have her scholarship info which puts her income over $20K.  Ugh, I think next year we may just hire someone.  lol.  

[Hal_Al]

There's a simple solution: forgo the $3 refund and just don't file a tax return for her, it's not required (under 12,550).  States usually follow fed filing rules, somewhat. 

https://ttlc.intuit.com/questions/2903200-do-i-need-to-file-a-state-return

You said " I put down that she got $17025 in scholarships and then later how much she had for room and board".  Don't do that.  TT uses the R&B amount as the taxable amount, because R&B is a "non-qualified" expense.  Only the difference between scholarship and qualified expenses (usually the difference between  box 5 and box 1) is the taxable amount. You've already calculated that ($5334).  Here's a workaround:  At the 1098-T screen, enter 0 in box 1 and $5334 in box 5, and $5334 as the amount used for R&B.  No other numbers.

You said "Both my kids have student loans and scholarships.  One has $17025 from scholarships and grants and her payments per 1098-T is $13940".  I'm assuming none of the $17,025 was from loans.  Loan $ are  not treated like scholarships. Loans are basically ignored. 

[Hal_Al]

I don't see where you said whether you are claiming  a tuition credit or are even eligible (income not too high). 

Be aware, even when the student is on scholarship, there is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.