Kiddie tax

[LB42]

I'm doing separate returns for my 18, 20, and 22 yr olds each with investment income of a few grand.

They are all students in college at least part time during 2023 and I'm claiming them all as dependents.

The 20yr old's return won't let me enter the kiddie tax form 8813, but the others do. I don't understand why they are being treated differently.

Similarly, the 22 yr old is getting an education credit while the other two are not.  They are going to college with no loans and the 22yr old has a $2 scholorship listed on her 1098-T.  I don't know why...but is that why she's getting the credit and the others aren't?

[Vanessa A]

Do you mean you are getting an Education Credit for your 22 year old?  A dependent cannot claim an education credit, only the person claiming them can claim the credit.   You would be the one that would get the credit for all 3 of them.  None of them would be eligible to claim it on their return with you claiming them. 

Are all 3 seeking degrees?  Is there a difference in how you entered the info on them all?  Did you mark that you are claiming the 22 year old as a dependent.  

Did they all receive the exact same amount?  Did the 22 year old have more earned income?  Is there something different on their return than the other 2?

Tax Benefits for Education

[LB42]

This is tricky, and it feels like TurboTax is making mistakes here.

I have 4 returns.  Me and 1 each for my three daughters.

All were going to community college in '23.  All have a 1098-T.  I'm claiming each as a dependent.

Each were entered as more than half time and each were entered as pursuing a degree.

Each also have investment income so they all should have 8813's with each other's numbers and mine on them.  The younger two have wages.  The oldest does not.  Wages were very small. (<1K)

There are two oddities I'm struggling with here.

1)  on the 22 year old's return, TurboTax is giving her the American Opportunity Credit and Lifetime Learning Credit and bringing her taxes down by $1K or pushing her to owe nothing.   (The $1K she would owe is based on her investment income at MY tax rate)

But you said she can only take this if she's not a dependent, and her forms are marked that she can be taking as a dependent. (1040 Standard Deduction - someone can claim you as a dependent = YES)

Should I report the 1098-Ts with MY taxes rather than theirs??

They've got their SSN on them.

2)  The 20 year old has slightly less investment income, but also worked.  wages = less than 1K.  Dividends more than 7K

She isn't being asked for the 8813 form.  TurboTax won't let her use it.  

It says she's not subject to the kiddie tax because she was a full time student (True)

she supplied less than half her own support from earned income (true)

she is a dependent on another return (true)

But those are all true for each of my kids.

So now my three kids with virtually identical income and expense profiles have very different tax profiles.

The only difference is the oldest had no wages.

The 22 yr-old is paying 0% federal.  (education credits)

The 20-yr old is paying 2.9% federal (her own tax bracket)

The 18-yr old is paying 11.9% (based on my rate - I'm in the 24% bracket)

I can't tell if I'm making an error or TurboTax is, but it sure seems like the software is!

Any suggestions or ideas of where I could look to fix this?

[AmyC]

1. Only the person claiming the individual can claim the education credit. See IRS Q & A about education credits. The 1098-T is reported on the parent's return to claim the education credit. If the student has taxable scholarship income, then it is reported on their return as well.

2. In What is the Kiddie Tax? we see that level of investment income does require the form. See also Topic No. 553 Tax on a Child's Investment and Other Unearned Income (Kiddie Tax). It may be that the $1k wages student does not need to file a return and therefore, instead of filing 8615 on their return, you should file 8814 on yours. See About Form 8615, Tax for Certain Children Who Have Investment Income and About Form 8814, Parent's Election to Report Child's Interest and Dividends.

You don't mention scholarships which are also subject to the kiddie tax and may be part of your difference. They count as earned income for filing requirements but unearned income for the kiddie tax.