Taxable scholarship is only treated as earned income for purposes of calculating a student-dependent's standard deduction. So, a student with more than $12,200* of taxable scholarship, will get the full $12,200 standard deduction. Any scholarship over that amount is unearned income and is subject to the kiddie tax. If TurboTax is not calculating it, you've most likely entered something wrong in the personal info interview, or your student is not subject to it. He must be an unmarried, full time student, under 24, with less than half his support coming from his earned income.
* technicality it's 11,850, $350 less than 12,200
