The term "earned income" is defined differently in different parts of the tax code. Pub 970 deals with educational benefits. The tax code for the so called "kiddie tax" - form 8615 has it's own definition of earned income. Scholarship in excess of tuition, if not reported in box 1 on a W-2, is unearned income for the 8615 form.
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"Earned income. Earned income includes salaries, wages, tips, and other payments received for personal services performed. It doesn't include unearned income as defined next.
Unearned income defined. Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, taxable scholarship and fellowship grants not reported on Form W-2, the taxable part of social security and pension payments, and certain distributions from trusts. Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). "
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The 8615 can be required whether you are claimed or not.
Tax for Certain Children Who Have Unearned Income
If a child's interest, dividends, and other unearned income total more than $2,100, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. If the parent doesn't or can't choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Attach the completed form to the child's Form 1040 or Form 1040A.
Form 8615 must be filed for a child if all of the following statements are true.
1) The child's unearned income was more than $2,100.
2) The child is required to file a return for 2016.
3) The child either:
a) Was under age 18 at the end of the year,
b) Was age 18 at the end of the year and didn't have earned income that was more than half of his or her support, or
c) Was a full-time student at least age 19 and under age 24 at the end of 2016 and didn't have earned income that was more than half of the child's support.
4) At least one of the child's parents was alive at the end of 2016.
5) The child doesn't file a joint return for 2016.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
