Why is TT saying my college age daughter, who is my dependent, has to claim her scholarship as income?
"It Turns Out Lindsay's Education Assistance Counts as Income. That's because scholarships & other education assistance are considered taxable income if they exceed Lindsay's education expenses, if the money was used to pay for nonqualified expenses, or if Lindsay was not enrolled in a degree, certificate or credential program at an eligible school. Lindsay will need to file a tax return to include this $6323 amount taxable income."
Why? Her tuition, as shown on her 1098-T, is $14842.12. The entire $6323 scholarship is sent directly to the school to pay ONLY tuition and fees imposed by the school. Her off-campus room and board is $13950. Her 1099-Q shows a $7717 qualified distribution which I used to pay half her rent for the school year. (I am listed as the recipient on the 1099-Q, she is the beneficiary.)
Broken down "if they exceed Lindsay's education expenses" - Clearly, her scholarship did not exceed her education expenses, even if you want to count only her tuition as an expense. "If the money was used to pay for nonqualified expenses," - Again, if tuition is not considered a qualified expense, I don't even know what to think. "...Or if Lindsay was not enrolled in a degree, certificate or credential program" - Yes, she is a senior working towards her first undergraduate bachelor's degree. "...At an eligible school." - She goes to a state school (UCSD) so how can that not be an eligible school?
Am I missing something here? Or is TT erring, or is there any possible way she really has to claim this scholarship as income? I feel like ignoring TT's advice for her to claim it but don't want her to get in trouble. I just think something is wrong, as we've never had this come up before even though she's always gotten this particular scholarship. I do notice every year it gets harder and harder to get the education expenses entered and accurate.
