Q. Should we record the scholarship from her work on the tax return?
A. No. Scholarships that pays for qualified expenses (tuition, fees, books and other course materials) are tax free and are not taxable and are not reprted on the tax return (if it was taxable it would go on her return, not yours).
You (or she) cannot claim a tuition credt based on expenses that were covered by employer assistance/scholarship.
You say "My daughter has received a scholarship from her work". If she's working, what's she spending her income on? That is, are you sure she qualifies as your dependent?
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
So, it doesn't matter how much he/she earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.
The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf
Are you sure her employer's help is classified as "scholarship"and not emplyer assistance (tuition reimbursement). There is a subtle difference, tax wise. The employer benefit is still tax free (if used for tuiton) but only up to $5250. Any excess (over $5250) is included as taxable income on the employee's W-2. Employer assistance is not ignored in the support calculation (it's treated as her funds, since it is her earned benefit).
