CA Nonresident, unearned income from education scholarship in Michigan. Why is Turbotax adding this to CA form 3800?

[thomasbomb]

I am a Michigan resident, and attended college in Michigan for 2019. I had scholarships and grants exceed the amount of tuition for that year, so I have some unearned income. Note that this was disbursed to me, a Michigan resident, attending a Michigan college, while I was living in Michigan.

I also earned money while working in California during 2019, therefore I am filing a nonresident return for CA. However, Turbotax is claiming my unearned income from these scholarships on CA form 3800. I have found no way to fix this issue. Is TurboTax calculating this correctly? From my understanding, CA has no right to tax this money in any way.

Note that I am an independent

[hbl3973]

thomasbomb,

Let's back up a bit and see if you should even be using form 3000.  As you say you are independent, i.e. not a dependent that your parents can claim on their return, did you earn at least half of your support in 2019?  That would include college tuition, room & board plus all other out-of-pocket expenses such as rent, food, car insurance, gas and maintenance.  If you can say yes to that, then you should be filing just the regular Form 540.

If not, then get back to me and I'll explain how CA part/nonresident tax is determined and h ow that MI income is involved in determining your CA tax rate without being taxed itself.

[thomasbomb]

I paid for my support through earned income, scholarships/grants, and student loans. My earned income is less than 50% of my support, but earned income plus student loans add up to more than 50%.

One of the questions asked if I paid for more than half of my support with earned income, which I responded no to.

[thomasbomb]

If anyone else has advice, please assist. Thank you!

[hbl3973]

thomasbomb,

Yes, you did answer correctly.  Be sure to include books and other qualified educational expenses (as described in IRS Publication 970) in order to minimize the scholarship income.

So, back to your original issue.  You are correct that the Michigan scholarship income is not taxable by CA since it was incurred while you were resident of the other state.  Please confirm that your parents are CA residents.  In the meantime, I will experiment with TurboTax to see how to override entries on IRS form 8615 that were carried onto CA Form 3800.

[thomasbomb]

My parents are MI residents as well.

Thanks for the link! I'll check if I have other qualified education expenses

[thomasbomb]

Hello,

Edit: I thought I had solved the issue, but I hadn't

[hbl3973]

Z'OK, we'll keep plugging!  I did see that I could zap the out of state scholarship income entry on the 3800 form when I switched over to Forms View.

If you leave out the scholarship income, is your unearned income less that $2,200?  Then you can go ahead and delete any 3800 form and/or go back and mark yourself as having earned more than half of your support to force a bypass of 3800. 

I will summarize the issue and any workarounds to the TurboTax folks when we've finished exploring these options.

[MJQ]

For someone who is using the free online version with the same exact problem, how do they remove the form since there's no "form view"?

[madg]

I have a similar situation but am dependent and my parents are CA residents (I am an IL resident and went to college in IL). My TurboTax has a CA Form 3800 that is asking for information from my parent’s 540NR form but they do not have that since they are CA residents. Does the CA Form 3800 still apply to me? How should I proceed? @hbl3973 

[hbl3973]

madg,

Sorry for the delay in response.  I was at my daughter's wedding and away from my computer for several days.

From your summary description, it appears you should be filing as an IL resident and do not have any CA earned income or CA-sourced investment income that would require a CA 540-NR filing.  However, did you receive any 1099 forms that showed CA as the state of residence?

[seva5307]

Hello @hbl3973,

I have a similar yet unique situation. I had a $4k research grant while at school in California and was claimed as a dependent by my parents who live in WA. I also moved out of state from CA in the fall for work, so I am filing as a part-year resident. I am having to fill out a 3800, with the $4k being counted as unearned income, and it is asking about my parents' 540NR income even though they are not California residents. Do you think I should not be having to fill out a 3800, or should I simply be filling in my parents' income information as $0 in all relevant boxes? My father doesn't like the idea of having to put their income as $0 because it implies they have a connection to CA. If you have insight into this situation I would greatly appreciate it, thanks!

[hbl3973]

seva5307,

My apologies for the delay.  I've been volunteering with AARP TaxAide providing remote assistance to help taxpayers prepare their own taxes and have been busy for the last several days.

While entering $0 will work, if you want to honor your parent's desire not to have them "connected" to CA, one option is to e-file only your federal return and to separately fill in a CA 540NR pdf by hand.  Your CA standard deduction will be $1100 (unless you had state earned income not mentioned in your query) and simply do not check the 3800 box on line 31.  (Should the FTB send you a letter, you reply that your parents are not CA residents and have no CA income so 3800 would have produced no extra tax.)  Today you can mail in an extension request form FTB 3519 with a check for $30 (taxable income $4000 - $1100, single taxpayer) and complete the paper forms for mailing any time up to October 15.

[dyama]

This thread seems to be the most applicable to my situation, but I can't get the workaround described here to work for me. 

My daughter has unearned income from a scholarship which exceeded her tuition (but not her room and board). This is showing correctly on the federal form with SCH on line 1 in addition to her earned income, and she owes a small amount of federal tax because the award exceeds her standard deduction (expensive school). 

She is an Iowa resident, but attending school in California, and also has earned income in both states, so she has to file in both, resident in Iowa and non-resident in California. I am *assuming*, but can't really find a clear answer anywhere, that her excess financial aid is attributable to Iowa, not California. Her 1098-T was issued to her home address in Iowa.

My wife and I filed jointly and are in no way required to file in California. We are Iowa residents with no income outside Iowa in 2021. 

Turbotax will not let me finish and file the forms without completing the FSB 3800, which requires entries from the parents' 540NR, which does not exist. If I manually delete the 3800 in forms view, as suggested above, everything looks great (she owes $11 in California, the form checks okay, and owes $11 less in Iowa, and that form checks okay). But when Turbotax does the final verification prior to e-filing, it re-creates the 3800 and demands those entries, and modifies both the Iowa and California forms accordingly.

I guess I can copy all the numbers onto a PDF for each state, but Turbotax is supposed to make my life easier, not harder! I already spent $45 per state to have it do the forms for me. Seems dumb if I then can't actually file them. I would do this in a heartbeat rather than do a 540NR for us when we don't otherwise need to, though (and pay to e-file it, too, no doubt...it might well cost us close to $100 to get an $11 refund in the end if we have to e-file for both her and us in addition to the sunk cost of the form). 

Anyway, thanks for any help or suggestions. 

[hbl3973]

dyama,

I'm away from my home PC for s few days but (a) with respect to the scholarship income, I would support your attributing the scholarship (unearned) income to Iowa as she is considered a full years Iowa resident "temporarily away" and is considered to be living with you for the full year, and (b) if you are using a desktop version, you might try bringing up the 3800 form directly and entering zero for the parent's income.  I've seen that type of edit to satisfy TurboTax checks for some other issues.

Also, did you explore the option of declaring more scholarship income so that you can declare some of her qualified educational expenses as out-of-pocket for the purposes of claiming the American Opportunity Credit?  IRS Publication 970 goes into details on this as part of its discussion of Pell Grants.