California NR Scholarship Income

[Anonymous]

My 21 year old son is a Utah resident (license, votes, etc. in Utah). He attends school full time in California. He has $27,000 in excess scholarship income for room/board and dining. Other than a small amount of interest, this is his only taxable income. We claim him as a dependent on our federal/state returns and he reports the excess scholarship income on his own federal return.

Is he required to file a California NR return reporting the excess scholarship income from the California university? Is the $27,000 considered California source income? Or should it be reported only on his Utah return.

[maglib]

@Anonymous 

You may want to see who gets a better use of the education deductions.  There are often times, it is better for the student to claim education expenses especially if parents are high earners.

The Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) consider graduate fellowships, excess scholarships,  taxable income to the recipient and, therefore, students may be required to complete various tax forms depending on their individual situation and they are required to file a tax return(s) with the appropriate agency each year. Fellowships may include payment of fees; non-resident supplemental tuition; or stipends. However, a portion of a fellowship may be excludable from gross income.

1. WHAT IS NOT TAXABLE?
As long as the recipient is a degree candidate, the portion of the award that is used
for tuition or fees and related expenses required for enrollment (such as books,
supplies, and equipment required for courses) is not subject to income tax. If the
recipient is not a degree candidate, the entire amount of the award is taxable.
2. WHAT IS TAXABLE?
Grand amounts (including stipends and tuition reductions) used for other
expenses, such as room and board, travel, research, clerical help, or equipment
not actually required for enrollment, are subject to income tax. Also taxable are
those portions of a scholarship or grant representing compensation for services
such as payment for teaching or research, even if the services are required as a
condition of receiving the grant. These payments are considered wages and are
subject to payroll tax withholding.
3. WHO IS RESPONSIBLE?
In cases where a portion of the grant is payment for services, the grantor should make a good faith allocation, specifying the portion of the grant that is compensation and therefore subject to withholding. The portion of
the grant that is compensation will often be processed through the payroll and withhold income and employment taxes on such
amounts.
On the other hand, they are not required to withhold or to file an IRS
Form 1099 on the portion of award amounts that exceed tuition and related
expenses, even though these amounts are taxable to the recipient. The
responsibility for determining whether the grant is, in whole or in part, includable in gross income
(i.e., taxable) falls to the recipient of the scholarship or award. In other words, the
recipient is responsible for determining whether the grant was used for qualified
tuition and related expenses or for other purposes.

So yes, California would require a tax return, and if the student is a non-resident they may also have to file a tax return in their home state.

UC §59-10-1003

If you are a Utah resident or part-year resident with income that is taxed by Utah and another state(s), the District of Columbia, or a possession of the United States, you may be entitled to a credit for income tax paid to the other state(s). Nonresidents do not qualify for this credit. Complete Schedule B to see if your income was taxed by both states.

I do not work for TT and hope this was helpful.

[Hal_Al]

I'm of the opinion that the income is only reportable on his Utah return, but cannot provide a reference. 

If it is reportable on a CA return, it is also reportable on a UT return, but UT will give him a credit, or partial credit for any tax paid to CA.