Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400). It is not earned income for the kiddie tax and other purposes (EIC. IRA contributions or additional child tax credit).
Your situation:
Box 1 $59,500, Box 5 $81,000 scholarships, $3500 other qualified expenses. He has $18,000 of taxable scholarship to report.
But, if he reports $22,000 of taxable scholarship, the parents can claim $4000 of tuition for the AOC.
Assuming he has no other income: 22,000 -12,950 Standard deduction = $9050 taxable income, $7900 (9050 - 1150) of it subject to the kiddie tax.
The simplified entry method (workaround), in TurboTax: Enter the 1098-T on your return with $4000 in box 1 and box 5 blank. Enter no other numbers. On his return, enter 0 in box 1 and $22,000 in box 5. Enter no other numbers.
