Dawn86 said: "So I filed without her as a dependent".
Just because you child needs to file a return does not mean she is not your dependent.
There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
- He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
- He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
- He lived with the parent (including temporary absences such as away at school) for more than half the year
If all that applies to you, you will need to file an amended return, claiming your daughter as a dependent and most likely claim the American Opportunity Credit (see loop hole explanation below).
Furthermore, there is a rule that says IF somebody else CAN claim her as a dependent, she is not allowed to claim herself. If she has sufficient income (usually more than $12,400), she can & should still file taxes. In TurboTax, she indicates that somebody else can claim her as a dependent, at the personal information section. TT will check that box on form 1040.
Even if she had less, he is allowed to file if she needs to get back income tax withholding. She cannot get back social security or Medicare tax withholding.
Dawn86 said: However she gets no cash from school it goes all to education - books, meals, room and board.
The part that goes to meals, room and board, is taxable. It does have to go thru her hands to be taxable. It just has to go to unqualified expenses.
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There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You 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 $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
