One last set of twists. You'll need to do the calculations to see what works out best.
(1) If you choose not to declare your daughter as a dependent and she goes the schedule C route, you lose $500 of tax credit but she gets the nonrefundable portion of the AOC, wiping out all of the 15.3% self-employment tax leaving a family outlay of $30 or less. You have the added bonus of being able to make an IRA contribution of $3,000 on your daughter's behalf starting her on the road to retirement savings.
(2) If the amount of the scholarship is more than $2,600 ($3,000-$400) and you make the amount of the scholarship taxable (and it might well have included that travel grant), you can contribute an equal amount to an IRA for your daughter on or before April 18th this year. (We did that every year our kids had earned income.) This would lower her adjusted gross income and raise her standard deduction so that taxable income becomes zero and the kiddie tax is equally zero.
(3) Finally, if the scholarship is less than $2,600 and you don't declare her as a dependent but make the scholarship taxable, the kiddie tax is somewhat larger because the scholarship is lumped with the NEC money but the AOC of $2,500 would wipe all that out, and you can still make an IRA contribution on her behalf.
(4) Actually there's another twist related to the Retirement Savings Contribution Credit where you make the scholarship taxable, contribute to the IRA and wipe the kiddie tax amount out using the 50% credit for the IRA. This would only be available if you do not declare her as a dependent and she did not start college before September of 2022. I have to run now to help prepare taxes with AARP's Tax-Aide program but you can work through those numbers, too. I strongly suspect either (1) or (2) would be optimal in the sense of total family tax outlays
