Scholarship income

[joboos]

Is there an update to this process for 2022 Tax Year?  The last few years I've been able to go into the form and enter "SCH" and the amount directly on line one, but this year's version doesn't seem to allow it?  I tried to do the process in the step by step but it doesn't put the SCH to the side of Line 1.   Thanks.  @KrisD15 

[Hal_Al]

There is a change for 2022.  Taxable scholarship is now reported on (new) line 8r of Schedule 1, rather than line 1 of form 1040 with SCH notation.

[joboos]

@Hal_Al Thank You!  I dove deep into the forms and did see that, but happy you confirmed that it no longer shows up on Line 1 like the last few years.  I did enter in Box 5 - Box 1 to get the difference in Scholarships paid vs Scholarships used for tuition, etc.  That gives me the so called income difference.  That is what i've applied on my sons taxes.   On my return, i fill out the 1098T itself.  

Thanks!

[sbharrat]

Very helpful thread. So I chose to split my son's scholarship into a taxable and non-taxable portion to maximize the AOC. (That appears to be legitimate so if I am wrong on that, then the rest of this question is moot.) I then entered the taxable portion on his (dependent) return and it shows up on line 8 as other income (and on 8r of schedule 1). So far so good. But it does NOT create a form 8615. In fact, during the entry, it claims that he is not subject to Kiddie Tax because he did not meet all 3 requirements:

* you were a full time student age 19 - 23 (he is)

* you supplied less than half of your own support from earned income (it never asked anything about this. He has about $7K earned income and about $5K unearned, including the taxable portion of scholarship)

* you will be claimed as a dependent on another tax return (he is)

In fact, it noted this out BEFORE even collecting the amount of taxable scholarships (the very next screen). 

Just to be sure, after I was done entering everything, I went back and stepped through the income section again and it still claimed he wasn't subject to kiddie tax.

Am I missing something? Taxable scholarship is unearned income for kiddie tax purposes right? 

[MarilynG1]

Yes, your student is NOT subject to Kiddie Tax.  Taxable Scholarship Income is considered unearned income for most purposes (including Kiddie Tax), but is considered Earned Income for the purpose of calculating the Standard Deduction for a Dependent.

The standard deduction for a dependent is the greater of $1100 or their earned income + $350 (but not more than $12,550).  For the purpose of that calculation, taxable scholarship is treated as earned income.

Even if his unearned income is more than $2200, form 8615 is not generated if his taxable income is 0.  And, that's the case when his unearned income is taxable scholarship, up to $12,550.

Here's more info on Kiddie Tax on Scholarship Income. 

@sbharrat 

[sbharrat]

@MarilynG1 Thanks for detailed response. And the link. Appreciate it. 

PS: for 2022, it looks like it is now earned income + $400 for standard deduction for dependent

[DaveF1006]

Yes, that amount changed in 2022 from $350 to $400. Here is an IRS link outlining the standard deduction.

@sbharrat 

[jjhapper]

Why did TT move taxable scholarship income from form 1040 line 1 with SCH notation to Sch 1 line 8r?

[Vanessa A]

TurboTax is following IRS rules. Per the IRS topic 421 "If filing Form 1040 or Form 1040-SR, include the taxable portion in the total amount reported on Line 1a of your tax return. If the taxable amount wasn't reported on Form W-2, enter it on Line 8"

If your taxable scholarship was reported on a W2, then it would be reported on line 1, however, if this is the case, then you would need to enter it as W2 on your return in the W2 section. 

[Hal_Al]

Q. Why did TT move taxable scholarship income from form 1040 line 1 with SCH notation to Sch 1 line 8r?

A. Because the IRS said so.

Q. Why did the IRS say so?

A. Probably because It makes computer matching of documents easier. 

[jjhapper]

Thanks for the reply. So does this mean IRS topic 421 is a new pronouncement that applies to tax year 2022 and all tax years going forward? Was TT's reporting for prior years on form 1040 as line 1 income correct?

[Hal_Al]

Q. So does this mean IRS topic 421 is a new pronouncement that applies to tax year 2022 and all tax years going forward?

A. No.  The change in lines on the forms has no connection to any  other rules.  

Q. Was TT's reporting for prior years on form 1040 as line 1 income correct?

A. Yes.

2022 is the first year for the new form line (8r, Sch 1). Line 1 of form 1040, with SCH notation was the place for 2021 and earlier years.