Math for college dependent student costs - I understand it as support, but want to see if math works otherwise

[HypotheticalQuestions]

I am reposting this as a standalone question, there are several resources that say the money I pay as a parent for my dependent college student is support and not a gift, but there is sometimes ambiguity in the response, so to be doubly sure I wanted to check the logic of the math below using what I understand is considered a legitimate "layered" approach.

Here is a hypothetical situation and I'd like someone to check the logic:

College costs for dependent student:

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Tuition: $10,000; Qualified Education costs (would be in Box 1 of 1098-T) 

Mandatory Fees: $5,000; Qualified Education costs (would be in Box 1 of 1098-T) 

Housing and Food: $15,000; Unqualified education costs (would not be in Box 1 of 1098-T)

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Total: $30,000

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Unrestricted Scholarship (can be used for any of above): $5,000

Accounting wise, the school lumps expenses and payments, including the scholarship in one general account, but will report the scholarship in Box 5 of the 1098-T

I have checked online, and it says as long as a person makes the payment directly to the school, the tuition is never considered a gift, it also says that a parent has leeway in terms of how the unrestricted scholarship is allocated when performing tax calculations regardless of how the school actually did it.

So, to avoid any need to fill out a 709 I assume that the scholarship is applied to Fees first, then Tuition, such that:

Tuition: $10,000 - not a gift, not reportable as gift

Fees: $5,000 - $5,000 scholarship = $0 - therefore no money to report 

Housing and Food: $15,000 - while this is considered as support when used on a dependent and not a gift, if it was considered a gift, it is below the $19,000 gift threshold so no 709 needs to be filed

Is this good math?  I did research and asked several AI's and I am told this is completely legitimate way to approach the problem.  I also had several AI's say that since the housing and food is considered support when the college student is my dependent, the IRS wouldn't expect it to be reported as a gift even if it was over $19,000

[Hal_Al · Accepted solution]

Everything you said is correct.  The student is your dependent and a gift tax return (form 709) is not required. 

A couple of side/back story issues:

1. Support doesn't matter, for dependency, if the student is full time and under age 24. 

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test. Only a QC qualifies a taxpayer for the Earned Income Credit. They are interrelated but the rules are different for each.

The support test is different for each type. The support test, for a QC, is only that the child didn't provide more than half his own support. The support test for a Qualifying Relative is that the taxpayer provided more than half the relative's support. 

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

If your child is over 23, then the amount of support you provided does matter, for dependency.   For gift tax return purposes, it is support, not  a gift. 

2. An unrestricted scholarship can be allocated anyway you want.  Although not applicable, in you case, parents can allocate scholarship to non quailed expenses (room & board), on order to free up qualified expenses (tuition) to claim the education credit.  In that case, the part of the scholarship used for non qualified expenses becomes taxable income, to the student (not the parent). 

[HypotheticalQuestions]

thank you!

[HypotheticalQuestions]

Also here is what google ai said:

Your logic and math are correct for the 2025 tax year. Under the scenario provided, you would not need to file Form 709. Your strategy utilizes two distinct tax provisions: the Unlimited Educational Exclusion and the Support Obligation for dependents.

Step 1: Apply the Unlimited Educational Exclusion

Under Internal Revenue Code Section 2503(e), payments made directly to a qualifying educational institution for tuition are not considered gifts. This exclusion is unlimited and does not count toward your annual gift tax limit.

• Tuition: $10,000 (Paid directly) = $0 reportable gift.

Step 2: Categorize Support for a Dependent

For a student who qualifies as your dependent, payments for "necessaries" such as food and housing are considered a fulfillment of a legal obligation of support. Because these payments are support and not "gifts," they are generally excluded from gift tax reporting entirely.

• Housing and Food: $15,000 (Support) = $0 reportable gift.

Step 3: Allocate the Scholarship to Remaining Costs

Mandatory fees (unlike tuition) do not qualify for the unlimited educational exclusion. However, your allocation of the unrestricted scholarship effectively reduces the reportable "gift" portion of the expenses to zero.

• Mandatory Fees: $5,000
• Scholarship applied to Fees: -$5,000
• Remaining reportable amount: $0

Answer:

The math holds up. Even if you chose to ignore the "support" argument and treated everything except tuition as a gift, you would still be well within the 2025 individual annual exclusion of $19,000.

Total Potential Gift = (Fees + Housing) - Scholarship

Total Potential Gift = ($5,000 + $15,000) - $5,000 = $15,000

$15,000 < $19,000

Since the total non-exempt amount ($15,000) is less than the $19,000 individual limit, no Form 709 is required.

Key Consideration: Ensure the tuition and fees are paid directly to the school rather than giving the cash to the student. If you give the cash to the student to pay the school themselves, the tuition exclusion is lost, and the entire amount counts against your annual $19,000 limit.