Grandparents Paid Tuition + Scholarships that exceed Qualified Expenses

[vocal]

My daughter's 1098-T has $7410 in qualified tuition and related expenses.  Her grandparents paid $6127 directly to her college for tuition to avoid any gift tax implications, she received a $1500 scholarship from the school, and $7000 in scholarships from other sources.  None of us are eligible for an education credit.  

She will file a tax return for income from part time jobs.  How much does she need to report as income from scholarships on her own tax return?

[DavidD66]

Your daughter should report $1,090 of income from the scholarships.  However, if she reports additional scholarship amounts as taxable she may receive the American Opportunity Credit.

[bosso3]

I don't have an exact answer for you, but I hope this can point you in the right direction. 

A tax expert may also review this and add more specifics.

For information on how to handle scholarships see https://www.irs.gov/faqs/interest-divid[product key removed]-of-income/grants-scholarships-student-l... 

For information on Tax Credits for Education (especially for your daughter) see https://www.irs.gov/newsroom/tax-benefits-for-education-information-center 

For information on gift taxes (for the student's grandparents)  see https://www.irs.gov/instructions/i709 

It is possible it would be more tax advantageous (for the student)  that the grandparents could gift the money directly to the student and the student use the money to pay the tuition. 

The gift tax is paid by the person(s) making the gift, not the recipient of the gift.

Each person can gift up to $15,000 in 2021 to any recipient without having to pay the gift tax.

This means married couples can give up to $30,000 in 2021 to any recipient without having to pay the gift tax.

The above site states "

Who does not need to file.

If you meet all of the following requirements, you are not required to file Form 709.

• You made no gifts during the year to your spouse.

• You did not give more than $15,000 to any one donee.

• All the gifts you made were of present interests."

[bosso3]

This comment ONLY applies IF you claim your daughter as a dependent.

If so, you may also want to consider having the grandparents gift the money to you and you pay her tuition.  That may entitle you to a larger credit than if the gift is given to your daughter and she pays the tuition.

More information:

Information about Form 8917 Tuition and Fees Deduction,  a link to the form, and instructions are here:

https://www.irs.gov/forms-pubs/about-form-8917

The instructions are listed after the form.

Make sure you will qualify for the deduction before taking action.

[KrisD15 · Accepted solution]

DavidD66 is correct. 

The numbers you listed means the student would claim 1,090 as income because of the scholarships. 

Payments made by others for a student's education is the same as if the student made the payments. 

If the student is a dependent, it is the same as if the person that claims the student made the payments. 

You might also include book and supply expenses if they are not listed on the 1098-T. 

If there are additional expenses, subtract that from the $1,090 and report the remaining amount as income on Line 1 of the student's 1040. 

@vocal