Q1. What is the math to arrive at the $7,100?
A1. The $3100 of his scholarship that is already taxable because there are not enough qualified expenses to cover the scholarship plus the $4000 you are going to use to claim the AOC/AOTC.
Q2. Assuming the parent takes the $7,100, does this mean my son will have taxable income of $7,100?
A2. Yes. He already has $3100 of taxable income. You are not "taking" $7100. YOU are only taking $4000. Technically your are re-allocating $4000 of tuition from the scholarship to the AOTC.
Q3. If my son files a tax return and the $7,100 is his only income, does he end up owing?
A3. No.
Q4. Is there a threshold where he wouldn't owe and maybe that is the figure the parent should use instead of $7,100?
A4. Yes. $14,600.*
Q4. If my son does NOT owe any taxes, is he required to file anyway?
A4. No. He is NOT REQUIRED to file. But, you may want to file, anyway, to document the reporting of the scholarship, as income, for you to claim the AOTC.
*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.
