I have done my granddaughters taxes using TurboTax while she is on a 4-year athletic scholarship. This is her final year. It took a while with great help from the community, to input the data but all has seemed ok until this year when I got an unexpected answer. This caused me to do some checking, and I can't believe the taxes she is being asked to pay!
Scholarship income is treated as unearned. There are two numbers on the 1098-T - Scholarship and Tuition. TT computes the unearned income to be the difference between them. It then computes on two forms, one for federal (8615) the other for state (California, 3800). These forms are to force her to pay taxes determined from her parent's rates. I have personally checked the instructions; she is required to file them. I have also set up my own computation to correctly fill them in.
I have determined from this the following.
Her scholarship is in the order of $45000. Her taxes come out at about $900 for federal and $500 for CA. If she were earning the $45000. on a W2, those taxes would be much lower. I do not consider her folks very wealthy (income approximately $100000}. If she had more wealthy parents her taxes would be higher still! She is not dependent on her folk's return.
Is this reality or am I doing something wrong?
