Scholarship exceed tuition but less than $6100, form 1098-T. Can I claim my son as dependent?, who claim education expenses? Does he need to file a return?

[jowerg]

My son is 19 year old and he is a freshman in the University. He is receiving a scholarship that exceeds the tuition by $2185 for 2016 (after excluding books) but he didn't had any other taxable income during the year.  Note: I paid for all his expenses.

These are my questions:
1)  Does he needs to file a tax return by his own? I understand the $2185 will be taxable income, but it is less that $6100 required to file.
2) Should The parent file the 1098-T form?
3)  Can I claim his as a dependent and apply deductions for his student expenses?
4) Will I be eligible for the American Opportunity Credit?

Thanks for any information you can provide

[ChristinaS · Accepted solution]

You do not need to file a tax return for your son- and there will be no benefit to doing so His income is below $6300. The threshold can be lower when a dependent has unearned income, but taxable scholarships are not considered unearned income for dependent filing requirement purposes.

The taxable scholarship would never go on your return, even if he's your dependent. Fortunately, it doesn't need to go on any return because of the amount.

While you certainly want to claim him as a dependent if he does not provide 1/2 of his own support (and you meet all the other requirements), you won't get a credit or deduction for education. If he has a taxable scholarship, that means you don't have any eligible education expenses. You cannot get a credit when tuition and books are fully paid for with tax-free money. So, if you go through the process of entering the 1098-T, Turbo Tax is not going to produce anything from it. It's essentially a dead end.

You don't technically file a 1098-T. You enter the data on it to produce results on your return. You are welcome to go through the motions, but the net result is that it would produce no tax benefits.

https://www.irs.gov/uac/who-can-i-claim-as-a-dependent

Questions? Please ask!

[jowerg]

Thanks. A final question: This taxable scholarship was actually used to pay for Room and board.  On the other hand I also paid for his books. Will this book expenses qualify for the American Opportunity Credit?, I entered all the information on TurboTax and it the application is calculating a credit for these expenses?, Is this correct even-though he had this taxable scholarship amount?

[ChristinaS]

Room and board is not a valid educational expense for the purpose of the tax credit. You also cannot "move" more of the scholarship as taxable to allow yourself to claim a credit-unless the scholarship specifically says that its for room and board before educational (which is extremely unlikely). How much books are we talking about here, and what are the amounts in box 1/2 and 5 of the 1098-T. If the excess if $2500 or more, you would have had to put A LOT of books....

[ChristinaS]

Also, make sure you didn't remove the Box 5 from Turbo Tax.... the taxable scholarship goes on his return, but you must still account for the fact that the expenses are offset by it. (Just in case you did that.... I'm not sure... I just know it doesn't make sense that you are showing a credit)

[MarylandRetriever]

What if my son's scholarship, plus a 529 distribution for 2016 and plus an employer sponsered tuition remission, all exceed tuition by over $11K — I know that it counts as income, but I can’t find anyplace on my son’s return (which I am just starting) for this type of income — when I go through Misc. Income 1099-A, 1099-C, etc — I still do not see a place for excess scholarship money.

[ChristinaS]

The easiest way to get the taxable scholarship on line 7 of the 1040 (where it goes with abbrev "SCH") is to enter the 1098-T on his return. Just put the calculated taxable scholarship amount in Box 5 of the 1098-T when you type it in. Don't fret about the rest. Putting just the taxable scholarship in Box 5 will carry the income to his return, and you won't need to upgrade from the free version.

[MarylandRetriever]

Thanks. In the meantime, I entered tuition expenses and scholarship on my child's return. Because the entire income is from the "unearned" scholarship (that requires maintaining a high GPA -- so no time for a job outside of school), the only expense is the tuition and mandatory school expenses. So, I do hope to keep those on my child's return and not mine. Can I enter tuition and scholarship JUST on my child's return?

[ChristinaS]

There's no point in entering the tuition. The only thing that really goes on your child's return is the taxable scholarship. So entering anything other than that amount when you type in the 1098-T is wasting time. The IRS doesn't see the worksheets or how you went through the Education section of Turbo Tax. It only sees the result- in his case, the result is $11k scholarship. Why spend all the time in the education section entering more than the taxable amount in Box 5? It will lead to more work for the same result. He cannot get an education credit or deduction.
Your return should be where you do the most work in the Education section, as you want to coordinate the tuition with the 529.

[ChristinaS]

When you go through your own tax return in the Education section, it will tell you at the end the exact amount to enter on your kids' return. So, simply plugging that number into the 1098-T box 5 entry gets you the result you need without the unnecessary legwork.

[MarylandRetriever]

Thank you again for the helpful answers. My child's college says we will not receive a 1098-T because all of the expenses are covered by the scholarship, tuition remission, and 529. I cannot figure out where, on my return, to enter in the taxable portion of these scholarships (although I did find a place for the 529) without a 1098-T. In the answers here, it seems as though I do need to declare some of the scholarship as income (although can still file it in my return) -- as the scholarship paid for room and board for 2016. So, I am going to try to enter the taxable amount in Box 5, but the TurboTax program insists I enter the information from a 1098-T (and I will not have one).

[ChristinaS]

There are many ways to get a scholarship income on your child's return. The 1098-T doesn't need to exist. There's no 1098-T form on your tax return- only the results from their input. Do you have EIN and school info from last year? Just use that. Or enter the scholarship as not on 1098-T and skip 1098-T. It doesn't matter how you input in Turbo, as long as the taxable income ends up on line 7 of his return.

[ChristinaS]

Also, make sure he looks in his student portal for 1098-T just in case. Kids who pay absolutely nothing for school still get them. The taxable portion goes on HIS RETURN- not yours. Please reread this thread and my previous comments. You can be done with this in 5 minutes.

[MarylandRetriever]

Thanks. I studied all of your comments — very helpful. It appears that I can include his income on my return (and not file one for him). I will double-check this — but because the scholarship is not counted as “unearned income” to only determine if he can be included on my return or file his own, his “unearned” income is below the threshhold I think. We double-checked the student portal — and No, the college insists that they do not issue 1098-Ts if "scholarship exceeds costs.” — so I entered it all manually (from the bills).

[ChristinaS]

This income cannot be on your return- only interest and dividends would apply, and only if int/ div were his only income. (Form 8814)
If you have more questions, please post a question for a new thread. We are getting too beyond the initial concern of this thread, and its for public consumption. Thank you! (I think it sounds like you are close to done otherwise:-))