Scholarship income

Forum|Forum|4 years ago
March 4, 2022
1 reply
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You have been helping me with this return already.

My granddaughter has an athletic scholarship and must file a return. The tax on her income is about $800 from the tax tables. TT is reckoning her tax based on her father's income and shows her tax burden to be almost twice as much. This is something to do with her being claimed as a dependent on her father's return.

Form 8615 is the culprit (tax for certain children who have unearned income). I looked up a definition of unearned which said it referred to stocks and bond income, neither she or her father have any. If I delete this form, TT computes the right amount of tax but the form shows up in the list of forms as undone.

The tax benefit her father gets for claiming her is in his state tax.

I know I can take her off as a dependent but please advise of the right way to input it.

KrisD15

Level 15

Scholarship income is reported as earned income on the student's 1040 Line 1.

Not unearned.

According to the IRS:

"Form 1040 or 1040-SR. If you file Form 1040 or 1040-SR, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 1."

Click on Wages & Income

(If the program asks about your W2, select Skip for now )

Select answers to the following questions if necessary to move forward

Click Add more income

Scroll down to the VERY LAST option "Less Common Income" and click Show more

On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START

On this new drop-down list scroll to the VERY FIRST option "Other income not already reported on a Form W-2 or Form 1099"

Click START

Select YES to the page titled "Other Wages Received" and Continue

Select CONTINUE on the "Wages earned as a Household Employee" screen (enter nothing here)

Select CONTINUE on the "Sick or Disability Pay" screen (enter nothing here)

Select "Yes" on the "Any Other Earned Income" screen and continue

Select "Other" on the "Enter Source of Other Earned Income" and Continue

In Description Box type "SCH" and the amount.

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briandsmithAuthor

Level 5

I had a closer look at this and your colleague's response. You are indeed showing me how to input to her return.

I followed your instructions and her tax went up to nearly $3500. I had left the 1098-T income in the return which explains the increase. You didn't mention it in your put but your colleague said I should.

I think the only way to resolve this is to remove her as a dependent on her father's return.

Hal_Al

Level 15

@briandsmith said "I think the only way to resolve this is to remove her as a dependent on her father's return".

No. The "kiddie tax" is NOT based on her being a dependent. It's because she is a full time student, under age 24, whose earned income is less than half her support*. The father giving up the the tax benefits, of a student-dependent, will not reduce the student's tax. Furthermore, she is still required to report that she CAN be claimed as a dependent, even if not actually being claimed.

What are her numbers? Box 1 and box 5 of the 1098-T? Books and computer? Any other income? Is the parent's income too high to claim the Tuition Credit?

*Reference: https://www.irs.gov/taxtopics/tc553