Yes, you would have to pay taxes on the excess. And yes, you could add other qualified expenses to lower the amount of tax due, but room and board is not a qualified expense. See Qualified Expenses. Expenses that do not count:
- Room and board
- Insurance
- Medical expenses (including student health fees)
- Transportation
- Similar personal, living, or family expenses
You can also have the student claim the excess scholarship, possibly at a lower rate. Although, that income may be subject to the kiddie tax, but could still be less than your tax, depending on your tax bracket. Try it both ways and see what works out best.
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