If that was her only income (excess scholarship and $40 in interest), she does not need to file her own return. Be sure to enter her book, materials, and supplies expense on your return as well. Those are qualified expenses just like tuition is. The room and board expense is non-qualifying for the purposes of the AOTC or offsetting scholarship income. Since you are claiming her, enter her 1098-T on your return along with all the other expenses. That statement about not being enrolled in a degree program is a generic statement reminding you that being enrolled in a degree program is one of the requirements of the American Opportunity Tax Credit. There is a question that specifically asks if she was enrolled in a degree program - be sure to answer YES to that question. Although you are seeing it because the scholarship is more than her tuition.
Qualifications for claiming the American Opportunity Tax Credit are:
- You paid an eligible student's qualified education expenses for higher education at any college, university, or vocational school with a student aid program administered by the US Department of Education
- The eligible student is you, your spouse, or a dependent on your return
- For the full credit, your MAGI (modified adjusted gross income) is less than $90,000 ($180,000 if you're filing jointly)
- For a reduced credit, your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you're filing jointly)
An eligible student is defined as a student who:
- Is enrolled at least half-time in a program leading to a degree, certificate, or other recognized credential ***
- Had at least one academic period beginning during the year
- Didn't claim the American Opportunity Tax Credit for more than three previous years
- Didn't complete the first four years of post-secondary education before the beginning of the year
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