Q. Would the child need to pay kiddie tax on the scholarship amount applied to unqualified expenses since it is unearned income?
A. Yes.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,400 filing requirement and the dependent standard deduction calculation (earned income + $350).. It is not earned income for the kiddie tax and other purposes (EIC, IRA contributions or additional child tax credit).
