Taxable scholarship in 2025, filing and APTC reconcilliation (CA)

[Sue52]

Hi! I'm a little confused and need some help regarding tax year 2025, please. My son is a tax dependent, and is part of our marketplace healthcare plan in CA. He has only a taxable scholarship of $5,525 and approximately. $20 interest income. Here is where I could use some clarity:

1. Is he required to file, federal or state?

2. Does the kiddie tax pertain to him?

3. Does his income need to be included in the APTC reconciliation, or can it be excluded if he is not required to file? 

Thank you in advance.

[MindyB · Accepted solution]

No, he is not required to file a tax return.  For the purposes of filing Form 1040, scholarships are considered unearned income (See: Pub 501).  California doesn't require him to file a return either (Dependent filing requirement). 

In this case, the Kiddie Tax doesn't apply.  While the Kiddie Tax typically applies to children (under 18, or under 24 if a full-time student) who have more than $2,700 in unearned income, he is not required to file a 1040.  See What is IRS Form 8615: Tax for Certain Children Who Have Unearned Income for more information on the Kiddie Tax.

No, his income is not be included in the reconciliation.  The IRS instructions for 8962 state you don't include a dependent’s income if that dependent is not required to file a federal tax return.

@Sue52 [Edited 02/11/2026 | 4:37 pm PST] 
 

[Sue52]

Thank you. 

[Hal_Al]

Q1. Is he required to file, federal or state?

A1. Maybe not.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $15,750 filing requirement (2025) and the dependent standard deduction calculation (earned income + $450).  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.

Taxable scholarship goes on line 8r of Schedule 1, from which TT treats it as hybrid income.

I'm not from  California, but my reading of the rules is there is a $5706 (2025) income filing requirement, which he appears not to meet.

Q2. Does the kiddie tax pertain to him?

A2. Technically, yes. But, effectively no, because his standard deduction wipes out all his taxable income.

I can't comment of the APTC issue.

[Hal_Al]

You didn't ask, but here's a post on the five main points on the  1098-T:

https://ttlc.intuit.com/community/college-education/discussion/i-need-help-with-1098t-section-colleg... See 2nd reply.

[Sue52]

Mindy, after seeing Hal_AI conflicting reply (below), it would seem that my son does not need to file after all. If he is not required to file, what is the impact on the APTC / Form 8962? We reported the income on our marketplace application, so including it on the 8962 seems logical. However, neither worksheet 1-1 nor 1-2 seems to include it. If income has to be on the 8962, is it included in line 2a or 2b?

I want to ensure we do not have more PTC than we should. Perhaps we should file for him anyway, which would then include his income on worksheet 1-2? Can he file even if he isn't technically required to?

Once again, I am so confused and appreciate the help.

Here's Hal_AI reply (for reference)

Q1. Is he required to file, federal or state?

A1. Maybe not.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $15,750 filing requirement (2025) and the dependent standard deduction calculation (earned income + $450).  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.

Taxable scholarship goes on line 8r of Schedule 1, from which TT treats it as hybrid income.

I'm not from  California, but my reading of the rules is there is a $5706 (2025) income filing requirement, which he appears not to meet.

Q2. Does the kiddie tax pertain to him?

A2. Technically, yes. But, effectively no, because his standard deduction wipes out all his taxable income.

[MindyB]

@Sue52 , a person can file a return at any time even if they are not required to.  However, if he is not required to, and is not filing just for a refund, the IRS instructions for 8962 state you shouldn't include his income.  You only include a dependent’s income if that dependent is required to file a federal tax return. It is expected that income estimates will vary from actual amounts reported, and that is ok.  

I have researched this further, and @Hal_Al's research is correct.  I have updated my response above, and will copy here for you:

• No, he is not required to file a tax return.  For the purposes of filing Form 1040, scholarships are considered unearned income (See: Pub 501).  California doesn't require him to file a return either (Dependent filing requirement). 

• In this case, the Kiddie Tax doesn't apply.  While the Kiddie Tax typically applies to children (under 18, or under 24 if a full-time student) who have more than $2,700 in unearned income, he is not required to file a 1040.  See What is IRS Form 8615: Tax for Certain Children Who Have Unearned Income for more information on the Kiddie Tax.

• No, his income is not be included in the reconciliation.  The IRS instructions for 8962 state you don't include a dependent’s income if that dependent is not required to file a federal tax return.