Under the new tax law for 2018, will the taxable part of scholarships be taxed at the rate of 37% above $10000 like other unearned income?

[dilltown296455]

@dosmom1234

[dilltown296455]

(tech difficulties-my apologies)

[dill4fam]

@dosmom1234

Have you used the worksheet for determining support? (food, FMV of their bedroom in your home/how long at home/at school/medical premiums, gas, cell phone, etc. There's also a spreadsheet floating around the internet to plug numbers into.

<a rel="nofollow" target="_blank" href="https://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf...

As for the education support: take the $26k total cost and subtract the $12k in scholarships since they are 3rd party support. That leaves you with $14k. Of that amount, how much was 529 (again is this parent- or student-provided support-my dilemma)? And how much was left over and who paid for it?

As for the support worksheet, you'll see that the beginning and ending balances of the student's account is used. So the fact that he earned $8k is irrelevant unless he also spent that $8k on education, gas, car payment, eating out, etc.

[dosmom1234]

Agreed.  For the kiddie tax if he earned, the $8k, is more than half his support, what was spent in total, then he doesn’t qualify for the kiddie tax which is a good thing.

If I basically take his total expenses or support paid by all parties and subtract the scholarships then he did earn more than half of that difference.  So he earned more than half his total support if I calculate total paid expenses less total scholarship

He was basically able to live off his scholarship money, it paid for his rent, gas, food and entertainment expenses along with books. So his support excluding scholarship was only around $14k. Half of that is$7k and earned $8k

Does that seem right?  I will look ar the worksheet

[maglib]

you forget that his home is your home , college is not his residence.  The costs of the home, health insurance, car, car insurance.....  all are costs to his support.  The rules is "4. The child must not have provided more than half of his or her own support, for the year".    See page 19 for support test rules: <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p501.pdf">https://www.irs.gov/pub/irs-pdf/p501.pdf</a> in help in determining support.
To be a qualifying child:
 1. The child must be your son, daughter, stepchild, foster child, brother,
sister, half brother, half sister, stepbrother, stepsister, or a descendant of
any of them.
2. The child must be (a) under age 19 at the end of the year and younger
than you (or your spouse if filing jointly), (b) under age 24 at the end of the
year, a student, and younger than you (or your spouse if filing jointly), or
(c) any age if permanently and totally disabled.
3. The child must have lived with you for more than half of the year.2
4. The child must not have provided more than half of his or her own support
for the year.
5. The child must not be filing a joint return for the year (unless that joint
return is filed only to claim a refund of withheld income tax or estimated
tax paid).
If the child meets the rules to be a qualifying child of more than one
person, only one person can actually treat the child as a qualifying
child. See Qualifying Child of More Than One Person, later, to find out
which person is the person entitled to claim the child as a qualifying
child.
Often nobody paid over half their support and then Sometimes no one provided more than half the support of a person. Multiple support means that two or
more people who could claim the person as a dependent (except for the support test) together provide
more than half the dependent’s support. In this situation, the individuals who provide more than 10% of the
person’s total support, and who meet the other tests for a qualifying relative, can agree that one of them will
claim the person as a dependent for any applicable tax benefits.
• The taxpayer claiming the dependent must file Form 2120, Multiple Support Declaration or similar statement, with the tax return.
• The other taxpayers providing over 10% of the person’s support must provide a written and signed statement agreeing not to claim the dependent for that year. The person who claims the dependent must keep
a copy of this written statement as a record. A list of the statement requirements can be found in Form
2120 Instructions

[dosmom1234]

Agree but form 8615 states he must not have earned more than half his support, not provided.  The dependent support test is provided half but the exclusion for form 8615 for the kiddie tax is earned.  Is that right?

[maglib]

@dosmom1234    You should read 8615 instructions.  <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-prior/i8615--2018.pdf">https://www.irs.gov/pub/irs-prior/i8615--2018.pdf...>
 Support for 8615: Support. Your support includes all amounts spent to provide
you with food, lodging, clothing, education, medical and dental
care, recreation, transportation, and similar necessities. To
figure your support, count support provided by you, your
parents, and others. However, a SCHOLARSHIP you received isn’t
considered support if you’re a full-time student. For details, see
Pub. 501, Dependents, Standard Deduction, and Filing
Information.

Form 8615 must be filed for anyone who meets all of the
following conditions.
1. You had more than $2,100 of unearned income.Unearned Income Worksheet—Line 1
Keep for Your Records (Basically Unearned income includes taxable
interest, ordinary dividends, capital gains (including capital gain
distributions), rents, royalties, etc. It also includes taxable social
security benefits, pension and annuity income, taxable
scholarship and fellowship grants not reported on Form W-2,
unemployment compensation, alimony, and income (other than
earned income) received as the beneficiary of a trust.)
. a the amount from your Form 1040, line 6, or Form
1040NR, line 23, whichever applies ............
b. Enter your earned income (defined earlier) plus the
amount of any penalty on early withdrawal of savings
from your Schedule 1 (Form 1040), line 30, or Form
1040NR, line 30, whichever applies ............
c. Subtract line 2 from line 1. Enter the result here and on
Form 8615, line 1 ........................
2. You are required to file a tax return.
3. You were either:
a. Under age 18 at the end of 2018,
b. Age 18 at the end of 2018 and didn’t have EARNED INCOME
that was more than half of your support, OR
c. A full-time student AT LEAST age 19 and under age 24 at the
end of 2018 and didn’t have EARNED INCOME that was more than
half of your support.
(Support defined below.  Earned income includes wages, tips, and
other payments received for personal services performed.
If you’re a sole proprietor or a partner in a trade or business in
which both personal services and capital are material
income-producing factors, earned income also includes a
reasonable allowance for compensation for personal services,
but not more than 30% of your share of the net profits from that
trade or business (after subtracting the deduction for one-half of
self-employment tax). However, the 30% limit doesn’t apply if
there are no net profits from the trade or business.
If capital isn’t an income-producing factor and your personal
services produced the business income, all of your gross income
from the trade or business is considered earned income. In that
case, earned income is generally the total of the amounts
reported on Form 1040, line 1; Schedule 1 (Form 1040), lines 12
and 18; or Form 1040NR, lines 8, 13, and 19.
Earned income also includes any taxable distribution from a
qualified disability trust. A qualified disability trust is any
nongrantor trust:
1. Described in 42 U.S.C. 1396p(c)(2)(B)(iv) and
established solely for the benefit of an individual under 65 years
of age who is disabled, and
2. All the beneficiaries of which are determined by the
Commissioner of Social Security to have been disabled for some
part of the tax year within the meaning of 42 U.S.C. 1382c(a)(3).
A trust won’t fail to meet (2) above just because the trust's
corpus may revert to a person who isn’t disabled after the trust
ceases to have any disabled beneficiaries.
 )
4. At least one of your parents was alive at the end of 2018.
5. You don’t file a joint return for 2018.
These rules apply if you’re legally adopted and a stepchild.
These rules also apply whether or not you’re a dependent.
These rules don't apply if neither of your parents were living at
the end of the year.

Support. Your support includes all amounts spent to provide
you with food, lodging, clothing, education, medical and dental
care, recreation, transportation, and similar necessities. To
figure your support, count support provided by you, your
parents, and others. However, a scholarship you received isn’t
considered support if you’re a full-time student. For details, see
Pub. 501, Dependents, Standard Deduction, and Filing
Information.

[dosmom1234]

Ok. So referring to 3c, didn’t have earned income that was more than half his support. He received $14k in scholarships which paid for his off campus housing, food ,gas and misc entertainment expenses.   If I don’t include the $14k in scholarships as support then his earned income was more than half of his support.  His total support for all amounts paid was $26k, less $14k in scholarships equates to $12k.   His earned income was $8k so it was more than half his support.  So he doesn’t qualify for form 8615 and the kiddie yax, right?

[dill4fam]

You have to also include premiums for health insurance (if a family plan: premium divided by # in family), fair market value of rent for your total home, annual utilities, annual water, annual trash, annual lawn service, etc (not mortgage/insurance/pmi),...whatever annual costs you have for your home. Total that and then divide by the # of family members. This is his annual share of your home expenses applied to your son. If he's there for 4 months during the summer, and 8 months away at school, then multiply the total of his home expenses by 4/12. Does he have a car, does he make the payments or you, does he pay for its maintenance your you, and gas, etc. Take your annual food bill and similar to the house expense, divide by the # in the family, then multiply by 4/12. Doe she pay his own cell phone bill? Dental insurance-his portion of the premium. Add in any out of pocket medical/dental copays out of pocket - did he pay any of them. Haircuts, clothing, etc. You have to think of expenses beyond just Cost of Attendance for school. Using the support worksheet is really helpful.

And yes, the 8615 half support is based upon EARNED INCOME, not gifts, scholarships, loans.

[dosmom1234]

Yes, agreed that support includes more than cost of attendance. His scholarship covers a large percentage of his support so I can include that and as you said include the pro rated expenses for when he is at home.

[maglib]

The scholarship is ignored as the students allocation to their support.  The only year my son provided half his support off of earned income, he earned over $32k working and used it all to pay for college.... it is a difficult threshold to reach.  The student has to have current year EARNED INCOME to qualify to claim themself.
@dosmom1234  your son earned only $8k in earned income, he did not pay over half his own support from earned income. He is your dependent and you probably claim him.  He is most likely subject to 8615 as scholarshipscan be both earned and unearned within the tax law, very strange. Go through the explainations in the instructions, there are worksheets. <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/i8615.pdf">https://www.irs.gov/pub/irs-pdf/i8615.pdf</a>

[dosmom1234]

Agreed that he did not pay half his support when you back out everything the scholarships paid for such as 9 months of housing, food. , gas, etc. but it may be possible that he earned over half because I am backing out $14k in support from the scholarships, that leaves around $15k in net support in which he earned half.

[maglib]

you are stretching....  do the forms in the instructions and let the math work itself out. He did not pay for his permanent housing at home , the scholarship paid for school housing. Who paid for his health insurance and such,  that at home housing allocation and insurance costs are normally high?  You want him to be able to claim himself.  Did you actually do the return where he didn't claim himself.  AOTC or learning credits?  If he claims himself you also can not get those, the student does.  You said " He really didn't have to pay for anything because his bank account grew by the $8K he had in earned income."  logic does not support him claiming himself. But if the math works, go ahead let him claim himself and he also gets the tuition credit then, not you.  Then worry about how that impacts state returns.  If it's supportable, by all means take it.

[dosmom1234]

I claimed him and the credits because he did not pay for more than half his support.  8615 does seem to care about paying more than half as it says earned more than half

[maglib]

In my scenario we are better not claiming our son. He doesn't claim himself but, he gets to reduce his tax liability to 0 with the education tax credits. In your sons scenario with only $8k in income, depending on your income levels, it most likely is better for you to claim them.