Q. If I CAN claim myself, do I need to include my financial aid refund as taxable income?
A. Yes. The portion of you scholarships/Pell grant that exceed you qualified expenses (tuition, fees and course materials) is taxable income. In your case, probably the whole $8000 "refund".
Q. If I do NOT count as a qualifying child and I DO claim myself, what happens if my mom still claims me, and I also claim myself?
A. The IRS comes after both of you and you each have to justify your claim.
As Critter already said, it's best if you Mom claims you. You will not pay less tax (or get a bigger refund) by claiming yourself. Your mom will get the $500 other dependent credit and up to $2500 Tuition credit.**
__________________________________________________________________________
**There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parent can claim the tuition credit on her return. She can do this because that much tuition was no longer paid by "tax free" scholarship. She cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $15,000 in box 5 of the 1098-T and $7000 in box 1. At first glance he/she has $8000 of taxable income and nobody can claim the American opportunity credit. But if she reports $12,000 as income on her return, the parents can claim $4000 of qualified expenses on their return (for the maximum $2500 credit)
