(To Be Deleted)

[Vanessa A]

No, hobby income is not earned income.  But, the services you are describing is not a hobby, it is self-employment.  You do not have to have a specific location to be self-employed.  This is no different than a tradesman working out of their van as their primary location traveling to other peoples houses or a walking counselor that walks in the park in people while counseling them.

The difference between hobby income and other payment performed for personal services is 1) how they are taxed and 2) your intent. 

Hobby income is not taxed the same as income from performing services.  You do not pay social security or Medicare taxes on it.  You are not performing a service with the intent of earning an income.  If you are, then it would be self-employment income instead of hobby income. 

[Vanessa A]

You can't really.  If you had no intention of making money doing this, this would be more of a volunteer activity instead of an activity where they paid you.  Even if you are not setting the pay rate, this would be similar to getting a tip.  You earned $5,000 providing a service to "gain experience". 

A hobby is done for the love of the activity or for sport or recreation.  A person with a workshop in their garage that likes to make different wood crafts, but doesn't need them all so he sells them to cover the cost of materials would be an example. 

Doing something to gain work experience would fall into an apprenticeship type category which is not a hobby activity. 

[Hal_Al]

Your question may be academic.  $5000 of earned income is very unlikely to be more than half your support.  Calling it earned income is not going to qualify you for the AOTC.

That said, this situation is simple.  If you want it to be earned income, you must report it as self employment, on schedule C, and pay self employment (social security and Medicare) tax (SET) on the income. There is no way to report hobby income, as earned income, on the IRS forms.

That said, there is a workaround, in TurboTax to force the income onto line 1 of form 1040, as earned income, but that is a red flag to the IRS. 

[Hal_Al]

I used a bad word, earlier.  Taxes are not "simple".  

If you believe this is earned income (and you do have some mild support from that IRS link), here's the work around to enter it as earned income on line 1 of form 1040:

This is how to enter earned income without a W-2:

1. Select Federal on the left side menu.
2. Select Income and Expenses toward upper left.
3. Expand/ scroll down the list and find the section called, Less Common Income.
4. Scroll all the way down and select Miscellaneous Income, 1099-A, 1099-C.
5. Select Other income not already reported on a Form W-2 or Form 1099
6. Answer the first question Yes.
7. Click Continue until you get to the page titled, Any Other Earned Income?
8. Answer Yes and click Continue.
9. Select Other and click Continue.
10. Enter a description and amount on this page, click Continue.

I think you'll actually be waiving two red flags at the IRS; one for the earned income on line 1 and a bigger flag for a full time student, under 24, claiming the refundable portion of  AOTC.  For your situation, "get in trouble" only (usually) means a delay in your adjusted refund or more likely  paying money back, sometime in the future, if the IRS disagrees.

[Hal_Al]

Q.   About the credit, I can still claim the nonrefundable part even if my earned income was less than one-half of my support (my W-2 wages), right? 

A.  Right.  And in that case, the refundable part  also becomes non-refundable.  That is, if you have enough tax liability, you can still get the full $2500 AOTC. 

Claiming the non-refundable credit is not a red flag item.  Adding your hobby income under "activity not engaged in for-profit" always has some red flag potential, but is low risk unless somebody sent you a 1099. 

[Hal_Al]

You can't classify tutoring as household employee income. 

Yes, your examples of how a low earning student could still be providing half his support are correct.  You have to decide if you meet the criteria.  In TurboTax, you do not have to provide any support calculations.  You just answer  one simple question: was you earned income more than half your support (or similar wording). 

[Hal_Al]

Q.  So, technically, if a student has only earned income and scholarships, it doesn't matter how much they earned (can be even 10% of their support), and as long as the rest in scholarships, they can claim the credit?

A. It would be unusual, but yes.

Don't forget non cash support.  The most common item: the support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

From Pub 926 (page4):

"Services not of a household nature, such as services performed as a private secretary, tutor, or librarian,
even though performed in your home, aren't considered household work".

https://www.irs.gov/pub/irs-pdf/p926.pdf

[RobertB4444]

@Maximilian_  You don't have to explain your calculation to the IRS - unless you are audited.  If you really feel like your math is questionable or you would like it reviewed by the IRS then you paper file the return and show your work.  

No, if you made more than twice as much as earned income in un-earned income it all goes in to the same pot of money.  You can't say I only used this part of the pot of money to cover the bills and the other part of the pot of money to cover the rest.

TurboTax should calculate what the AOTC is for the year once you've input everything.

[DianeW777]

Scholarships do not have to be considered as part of earned income unless it represents payment to the student as indicated below. Likewise unemployment is not mentioned in earned income as defined in IRS Publication 970 for the AOTC.

If you are referring to the items that would disqualify the AOTC, specifically 'Age 18 at the end of 2021 and your earned income (defined below) was less than one-half of your support', see the definition below. Total support is a different matter in regards to claiming a dependent on the tax return.

Earned income. Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Earned income includes the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship grant. 

Support. Your support includes food, shelter, clothing, medical and dental care, education, and the like. Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. However, a scholarship received by you isn't considered support if you are a full-time student.