I have a quick Kiddie tax question. I know the rules have changed for 2020 and such.
My son is a Freshman in college. He’s was 18 when 2020 ended. He has earned income from a job of around 10.9k. He also received scholarships 7,416 of which 3,570 was used for qualified tuition expenses. The difference is represented on line 1 of the 1040 to the left with SCH next to it. So it’s treated here as earned income. He’s been filing his own tax returns for the last couple of years to recoup withheld taxes. In 2020 he’ll do that plus add the school stuff.
My question is this….the total income between his job and taxable scholarships is more than the 12,400 standard deduction by about 2,478. His unearned income (dividends and interest) is only 106. It seems like 2,478 won’t be subject to the kiddie tax because his unearned income is less than 2,200. At least that is how I read it. However, I’ve read many blogs and such and some people say that the taxable scholarships are unearned income (even though that is not how it’s represented when putting it on the 1040). If it’s unearned income that would force my son to also file form 8615 and pay tax on the 2,478 at my rate instead of his, costing him more money.
What are your thoughts on this? I’d rather not file the 8615 as it’s about a 500 dollar swing in taxes and a lot more information. As an FYI, I’m in the 24% bracket and ineligible for any education credits due to income (not sure that affects the answer above, but some background if needed). I did put the 1098T on my returns and did get some dollars back due to expenses above and beyond the scholarships.
Thank You…
