Form 8615 Miscalculation?

[akalb18]

I'm a 20 year old, full time student and a dependent with unearned income exceeding $2500 from scholarship refunds. I filled out form 8615 and filed through TurboTax before the IRS rejected my return for errors related to form 8615. TurboTax updated their 8615 form and when I attempt to correct my error, it is now asking me more questions about my parents income. Upon answering these questions, my federal refund drops from $2480 to owing $1745.

Specifically, the amount changes when I enter my parent's net long term capital gains amount (~ $48,000).

I'm confused because I barely exceed the $2500 threshold (my unearned income is $2543) and it results in over a $4000 difference in taxes, which would be paying more than all of my unearned income back. I can't even figure out how the tax could possibly be calculated at that amount.

If anyone knows what is wrong, or how TurboTax is calculating the tax on unearned income I would greatly appreciate help/advice.

[KrisD15]

The Scholarship income would be treated as EARNED income and your Standard deduction should be your earned income plus 400.

If the only income you need to claim is the scholarship, you should owe no tax. 

How are you entering the taxable scholarship? 

Enter the amount under

Deductions & Credits

EDUCATION

Expenses and Scholarships

Tell the program you don't have a 1098-T, that you have an exception, don't enter any expenses, enter the excess scholarship on the screen that asks if you received a scholarship you have not yet reported.  

If there is more to the story, such as additional income, continue your question.

[akalb18]

Thanks for the response! There is more to the story in terms of income -- I made around $32,000 in income from two jobs. As far as I understand, this still shouldn't yield a tax as high as it does currently. If it matters, I originally entered my 1098-T information during the education deduction section.

[AmyC]

The income calculation is tricky with the Form 8615 and several worksheets that go with it. Instructions for Form 8615 and Form 8615. After much, you come to Line 13 which shows:

Figuring the Child's Tax

The final step in figuring the child’s tax is to determine the larger of:

1. The total of:

a. The child’s share of the tentative tax based on the parent's

tax rate, plus

b. The tax on the child’s taxable income in excess of net

unearned income, figured at the child’s tax rate; or

2. The tax on the child’s taxable income, figured at the child’s tax

rate.

This is the child’s tax. It is figured on Form 8615, lines 14 through

18.

Since we can't see all the worksheets, I suggest you preview your tax return and look at Form 8615 and its worksheets to determine how it calculated the answer. If your parents are high income and your income is being taxed at their rate, it could cause this tax difference.

To see your forms:

• In desktop, switch to Forms Mode. 
• For online, see How do I preview my TurboTax Online return before filing?

[BadgerPDX]

I am familiar with at least one current bug with Form 8615. Here is a community page about it:

https://ttlc.intuit.com/community/taxes/discussion/turbotax-2023-bug-with-form-8615-schedule-d-works...

It's possible this is related to your issue. The resulting large jump in tax due when filling out 8615 is consistent with what is seen with this bug, but I'm sure there are many other reasons for a tax jump other than this bug.

[jk051414]

There is an error in the software.  It is not correctly calculating the child's taxes at the parents tax rate.  In my case, the amount owed is the amount of taxes that the parents would pay on their income.  

If someone from Turbotax is monitoring, could you please look into this problem?

[jk051414]

try deleting the form and re-inserting the information.

[lbaldo]

This is the exact same problem I am having with form 8615!!!  So clearly TurboTax did not fix. I called and spoke to a “TT CPA” and was told the form was scheduled for an update on February 27. I checked the schedule posted about form availability and saw no evidence it was being updated. So now I am concerned. I am thinking about just overriding and using the IRS instructions but I paid for correct forms and should get them. This is clearly a recurring problem based on support forum comments so why hasn’t it been fixed?

[MarilynG1]

The Kiddie Tax only applies to unearned income in excess of $2,600.

• $0 - $1,300 isn't taxed.
• $1,301 - $2,600 is taxed at the child’s tax rate.
• Over $2,600 is taxed at the parents’ marginal tax rate.

Here's more info on Form 8615.

If you can be more specific about where you think Form 8615 is not being calculated correctly, we'll try to help. 

@lbaldo 

[lbaldo]

100% of my income is LTC gains and qualified dividends and due to my large volume of deductions, and my Head of Household filing status, my tax rate is 0%.  There is no way to inform the form 8615 calculations for that scenario.  For some reason (which should be fixable) the form forces me into a "single" tax rate status - perhaps because that is my daughter's status.  I had to change it manually in the worksheet.  It exploded the amount of tax owed by my daughter to an amount more than she earned.  I saw someone else describe this problem  in March 2024.  The form didn't prompt me to add my LTCG so had to do that manually.  It completely confuses the calculations.  My guess is that the parent having a lower tax rate than the child is so unusual the form can't manage it.  This was all caused by taking an unqualified 529 distribution that should have gone to me instead of my daughter had I had the time to do the what if analysis.  When I do it now, had I had the distribution to me, I would have saved $800 for my daughter because all I would have had to pay is the 10% penalty, no incremental income tax. So I KNOW that my tax rate would have still been 0% had I done this correctly and had the distribution sent to my account.  I can't fix the 529 distribution error (unless you know differently) so I suppose all I can do is manually enter a "0" on line 9, which is what it is supposed to be according to the official IRS instructions for this form.  If you can confirm this, then problem solved (at least for me) and I will never need to do this again.  TT should still fix it for others as there are MANY complaints.  Its NOT user error.  Thanks

[BrittanyS]

I would like to take a deeper look at this. However, I need a diagnostic file which is a copy of your tax return that has all of your personal information removed. You can send one to us by following the directions below:

TurboTax Online:

1. Sign into your online account.
2. Locate the Tax Tools on the left-hand side of the screen.
3. A drop-down will appear. Select Tools
4. On the pop-up screen, click on “Share my file with agent.”
5. This will generate a message that a diagnostic file gets sanitized and transmitted to us.
6. Please provide the Token Number that was generated in the response.

TurboTax Desktop/Download Versions:

1. Open your return.
2. Click the Online tab in the black bar across the top of TurboTax and select “Send Tax File to Agent” *
3. This will generate a message that a diagnostic copy will be created.  Click on OK and the tax file will be sanitized and transmitted to us.
4. Please provide the Token Number (including the dash) that was generated in the response.

*(If using a MAC, go to the menu at the top of the screen, select Help, then, “Send Tax File to Agent”)

[BadgerPDX]

@BrittanyS - below is the token number of a return (using the latest version of TT Desktop 2024 as of today) that shows the exact problem with the Form 8615 Worksheet. Refer to the second page of that Worksheet - titled "Family's Aggregate Line 9 Schedule D Tax Calculation" - and see the override that I have found to be necessary on Line 44 of that second page. If you need further information, feel free to contact me here or direct (if possible). 

Token: 1552139-8858

I am disappointed to see the same bug still exists this year (I reported this last year). I can provide my case number from last year, as well, if that would be helpful. 

I look forward to hearing of a successful resolution. It won't do me any good this year, but maybe it will next year.

[BadgerPDX]

@BrittanyS Trying again, since the website appears to have automatically filtered the token, thinking it was a phone number.

Repeating it, but with spaces every few digits. Hopefully this passes. 

Token: 6155 2139 8858 8099

Considering you're asking for this...I'm surprised the community board filter didn't allow the full text to pass cleanly the first time.

[BadgerPDX]

@BrittanyS I posted a file that shows the problem a week ago. Was this file received? Was the bug confirmed? Whenever possible, I would appreciate hearing the status of this issue. I'd prefer it was not an issue we run into, for a 3rd year in a row, next year.