How does kiddie tax work for 2 kids? Child1 had $17k W2 wages, $4k taxable scholarships. Child2 had $9k W2 wages, $16k 1099-NEC (business), $4k taxable scholarships.

[KolacheKowboy]

Child1 and Child2 were both 20 for 2022 and enrolled as full-time students. Parents file MFJ and claim Child1 and Child2 as dependents.

[DoninGA]

The Kiddie tax is only for unearned income, interest, dividends and capital gains.  The income you posted cannot be used for the Kiddie tax.

Then child's earned income from work reported on a W-2 or the earned income from Self-Employment reported on the 1099-NEC is not entered on your tax return.  They must file their own tax returns to report the income received.  Any taxable scholarships are entered on their tax returns.

[KolacheKowboy]

I prepared tax returns for each child (not filed yet), and for Child1, TurboTax did not treat the taxable scholarship as unearned income (the program did not calculate a child tax for Child1). But for Child2, TurboTax is treating the taxable scholarship as unearned income, and the program wants me to complete Form 8615, it's requesting the parent's taxable income (MFJ), and it's computing a child tax. Guess I'm confused about TurboTax's different treatment for Child1 and Child2 regarding the taxable scholarship income. I entered the taxable scholarship income the same way on each child's tax return (i.e. entered the taxable amount directly in the "scholarship/grants" field in the "Education" section ... I did not enter 1098-T amounts).

[DoninGA]

@Hal_Al Would you care to comment on this user's issue?

[KolacheKowboy]

Any other thoughts? And to confirm, taxable scholarship income should not be treated as unearned income for Child2?

[DoninGA]

@KolacheKowboy Taxable scholarship income cannot be entered as a Kiddie Tax on your tax return.  The student has to enter the 1098-T on their tax return if the scholarship amount is greater than their education expenses.

[KolacheKowboy]

Ok, thanks. The amounts shown on the 1098-T don’t sync-up to the “net taxable amount” of scholarship income. I suppose I can manually adjust the amount entered for 1098-T education expenses in TurboTax (and not use the amount reported on the 1098-T) to arrive at the taxable scholarship income amount based on my worksheet.