1098-T scholarships exceeds tuition by $1200. Must depended file if no other income for the year?

[sunshinejoe]

23-year old, full-time dependent student received a 1098-T with Scholarships/Grants exceeded tuition by $1200. I entered it in my taxes as the parent but because of the excess, it says Education Assistance counts as taxable income if education expenses are exceeded, dependent child must file taxes.

Is this correct? Dependent child has no other income to report and was not planning on filing for 2024. 

I want to make sure this is correct. 

Also, for future reference, is there a threshold or minimum amount that when over will not need to be filed?

Thanks

[MinhT1]

As the scholarship is given to the student, any scholarship in excess of tuition is taxable to the student who has to report it on his own tax return.

In your case, as the excess is only $1,200 and your child has no other income, he is not required to file a tax return.

If your dependent son is under age 19 (or under 24 and a full-time student), he must file a tax return for 2024 if he had any of the following:

1. Total income (wages, salaries, taxable scholarship etc.) of more than $14,600 in 2024.
2. Unearned income (interest, dividends, capital gains) of more than $1,300.
3. Gross income (earned plus unearned) exceeding the larger of $1,300 or his earned income (up to $14,600) plus $400.
4. Other self-employment income over $400, including box 1 of a 1099-NEC

If your son is eligible for education credits such as the AOTC or the Lifetime Learning Credit and your income allows it, you can also use part of his tuition to claim an education credit on your tax return, leaving your son a greater taxable excess scholarship.

For the AOTC, you need to use $4,000 of tuition to get the maximum credit of $2,500.

For the LLC, you need to use $10,000 of tuition to claim the maximum credit of $2,000.

In either, the excess scholarship for your son would be less than $14,600, which does not require him to file a tax return.

[sunshinejoe]

Thanks for the quick response MinhT1.

Still not fully clear on this subject. Please clarify the following:

- I am getting from you that dependent child in my situation does not need to file. Then, Why does Turbotax tells me that the dependent child... "will need to file a tax return to include the $1200 amount taxable income"?

- Confused by point # 3: 1098-T, box 1: $6950, box 5:$8150. Does that mean dependent child needs to file?

Thanks

[MinhT1]

Your dependent child has to report the excess scholarship as taxable on his tax return. But as it is less than the standard deduction of $14,600, he is not required to file a tax return.

On point #3, again he is not required to file a tax return as the taxable scholarship is only $1,200 ($8,150 - $6,950), which is less than $14,600.

[sunshinejoe]

Awesome MinhT1! Got it, no need to file.

Still, Turbotax is making it confusing instructing that dependent child needs to file for the $1200, when there is no need to. Turbotax should fix that or clarify it the way you did it.