AmyC
Expert Alumni

Get your taxes done using TurboTax

Scholarship income is a hybrid. It is used as earned income for the filing threshold and unearned income for the Kiddie Tax.

We try to get rid of the 1099-Q first with 529 qualified Room and Board to make it nontaxable. Yo succeeded so it isn't entered.

Then we move to AOTC credit for the parents, you need $4,000. You have it with tuition and books.

This leaves the $6,000 scholarship as passive income to the student and subject to the Kiddie Tax. The amount of tax should be low enough that the parent credit for AOTC makes this strategy worthwhile.

You may find that moving numbers around a bit gives you a better refund overall. The IRS allows you to manipulate your AOTC credit vs the student's passive income to create the best scenario.  The IRS has a great brochure that explains how scholarships and tax credits interact.

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