Q. Should my dependent college girl file tax return for the $3500 undesignated grant that we used for room?
A. No, if that was her only income. The $3500 is taxable income, but it is not enough for her to have to file a federal tax return. Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free. Scholarship amounts that exceed QEE is taxable income, on the student’s tax return. Room & board are not QEE.
Q. Is this unearned income that is above $1300, and she must file return?
A. No.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (not the usual $1300 for unearned income) 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.
Taxable scholarship goes on line 8r of Schedule 1, from which TT treats it as hybrid income.
You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return. Your dependent child must file a tax return for 2024 if he had any of the following:
- Total income (wages, salaries, taxable scholarship etc.) of more than $14,600 ($13,850 for2023).
- Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1300 ($1250 for 2023).
- Unearned income over $450 and gross income of more than $1300.
- Household employee income (e.g. baby sitting, lawn mowing) over $2600 ($14,600 if under age 18)
- Other self employment income over $432, including money on a form 1099-NEC
Unearned income includes taxable interest, dividends, capital gain distributions, taxable social security benefits, pensions and annuities and Unemployment compensation. Earned income includes wages, tips, and taxable scholarships/fellowships/stipends.
