Filing Dependents 1098-T for AOTC credit, do I need to include dependents' Modified AGI on form 8962?

[migearellano]

Hello, any information or guidance would be greatly appreciated. Let's say Single Parent is a Head of household status and has a dependent that received a 1098-T for College and the 1098-T will be reported on the parents tax return to claim Education credits. Dependent is on Parents' 1095-A and a 8962 form will be required for the Premium Tax credits.

Parent is claiming 4,000 for Tuition, which will result in Dependent of having $8200 in taxable scholarships income, and 2200 in W2 income. 

1. Does my dependent need to file a tax return to report the 1098-T since the parent is claiming the Education credit?

2. Form 8962 is asking for Dependents' Modified AGI. Do i need to include this on line 2b of form 8962? Would it make a difference if dependent filed or not? Adding their Modified AGI would change the Premium tax credit dramatically. 

@Hal_Al  I have used some of your replies regarding the 1098-T tax "loophole" and would appreciate any guidance on that portion. 

Thank you.

[Hal_Al · Accepted solution]

Q.1. Does my dependent need to file a tax return to report the 1098-T since the parent is claiming the Education credit?

A. 1. No, since his total income is below the $14,600 filing requirement.* But you may want to have him file, anyway, just to document reporting of the scholarship as income (I'm not aware of any IRS guidance on that issue). 

Q. 2. Form 8962 is asking for Dependents' Modified AGI. Do i need to include this on line 2b of form 8962? 

A. 2. I'm not knowledgeable on that topic, but my reading of the form 8962 instructions indicate that you do NOT include his MAGI, because he is not a dependent "who is required to file an income tax return because their income meets the income tax return filing threshold".

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement and the dependent standard deduction calculation (earned income + $450).  It is not earned income for the kiddie tax and other purposes (e.g. EIC). 

[migearellano]

Thank you! I was leaning towards the dependent not filing but I think filing would be the safest bet.. To confirm, if the dependent is to file and their AGI Is still be under the requirement, they are technically not required to file even though there is a 1098-T? I keep thinking of there being an issue of not reporting the additional numbers that are not accounted for in the parents return. 

Now, the part I want to be absolutely sure on is for form 8962.  I hope someone can chime in regarding form 8962 and if the modified adjusted gross income needs to be included on the parents return which will affect the premium tax credit. 

[Hal_Al]

Q. To confirm, if the dependent is to file and their AGI Is still be under the requirement, they are technically not required to file even though there is a 1098-T?

A. Yes.  The 1098-T is only an informational document. The numbers on it are not required to be entered onto your or the student's tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this). What you enter is not sent to the IRS.

Q. I keep thinking of there being an issue of not reporting the additional numbers that are not accounted for in the parents return. 

A. Even if you entered it in TT, it would not be sent to the IRS.  Only the bottom line(s). What you claim for the credit goes on form 8863.  What he claims, as income, goes on line 8r of Schedule 1. So far, I have not seen  a single report, in this forum, of the IRS questioning the use of the scholarship income loop hole.