Taxable income from scholarship

[SDGO]

Hi,

My filing status is head of household. I have 3 dependents (parents and daughter). My daughter who is 19 and full time student got a 1098T. Box 5 is $17282 and box 1 is $10007.  After entering all the info at turbo tax, it says my daughter has a taxable income of $6163 and needs to file her return.

My gross income is only $22000 because I’m on Worker’s comp.

whats the best thing to do?

- Can I just add the taxable income on my return? If yes where do I put it? If I add it on my income, it will if the taxable income was put on my daughter’s w2 or 1099?

- Or can I not include the 1098T on my return?

[KrisD15]

No, you can't claim that income on your return.

You would use the 1098-T on your return only to apply for an education credit. Since the student received more aid (scholarship) than what was paid in tuition and books, there is no education credit available. Since you entered the 1098-T into your TurboTax program, it let you know that you don't qualify for a credit, but now the student needs to file and claim that income. The student can still be claimed as your dependent if they meet the requirements to be your Qualified Child or Qualified Relative. 

When the dependent student files and claims that income, be sure they choose "Someone else can claim me" in the Personal Info section. 

In order to enter the scholarship income on the student's return, you can enter the 1098-T in the Education Section (under Deductions & Credits) in their TurboTax program the same way you did that in your TurboTax program (including Books and Supplies). The taxable income the student needs to claim (in your case 6163) will show up on their Schedule 1 line 8r. 

[SDGO]

Does it mean I’m not gonna enter the 1098T on my return since my daughter is putting that on her return?

[KrisD15]

Correct, it will not be part of your return if there is no education credit. 

[SDGO]

Ok. Can she enter the other expenses like the books required and the non required expenses like school supplies, iPad etc ? Is there any other way to lower the taxable income or to lower the tax due?

Also is there a difference between head of household and RDP? Can I still be head of household if I’m a RDP?

[AmyC]

You want to reduce her taxable income with school supplies, books, all the things required. You can shift money around. If her dorm and living expenses also come out of that, you could potentially give her more income and you take the AOTC credit on your return. It gets tricky moving all the numbers. For variations and references, please look at another of my answers for help. 

[SDGO]

Thank you for your answer.

Follow up question.  If I’ll try to take the AOTC credit does it mean I have to enter the 1098T under my return? Can we both enter the 1098T me and my daughter? If not where do I put her income when I do her return on turbo tax?

[Vanessa A]

Yes, you would both enter her 1098-T on your individual returns. 

You will enter on yours to claim the AOTC and she will enter it on hers to claim the income. 

 For both methods, you will enter them in the same area under Deductions and Credits>>Education>>1098-T. 

[SDGO]

Thank you for your answer.

Is there anyway to put the taxable income on my daughter’s return without putting the 1098T so it won’t ask any info about my 1040 because it’s so confusing?

[Vanessa A]

No.  Since this is scholarship income, which is unearned income, it is possible it is subject to the Kiddie Tax.  In order to determine the tax rate, your income needs to be entered.  If your income is $20,000 for the year, as HOH, you are likely in the 10% bracket.  Although, this will probably not make any difference on your return, it would if your income were say, $200,000.  So, whether or not you enter it on your return, it has to be entered on her return. 

[SDGO]

Thank you for your answer.

Follow up question. It’s asking me on my return: Was any of my daughter’s financial aid already included as income? These are the options:

O Yes, she had scholarship or aid reported as income on a form W2 or Form 1099 misc

O No, she didn’t have any scholarship or other aid reported on a form W2 or form 1099 misc

[Vanessa A]

The answer would be no, UNLESS, the school sent her a W2 or 1099 Misc.  If she did not do any type of work for the scholarship (like a work study program) they probably did not send her one. 

[SDGO]

Thank you for all the responses.

I’m doing my daughter’s return right now. I entered 1098T 

Box 1 10077

Box 5 17282

then it asked me how much did she use for room and board and I put $12176.

Now the tax due only shows Federal $0 and state $68. Is that really right? I was expecting she’s gonna owe a lot or I did something wrong?

[AmyC]

If you were entering 529 information, then it would make sense but not for a 1098-T. Sometimes box 5-box 1 is used and that is the taxable income. You can shift it around some.

Box 5 of $17282 - $12,176 room and board left only a little for tuition = $5,106 but tuition paid was $10,077 which means you would qualify for full AOTC since you spent over $4,000 out of pocket.  The credit on your return would more than compensate for a little bit of tax on hers. Let her pay tax on the $12,176 while you take a huge credit and save thousands. She may not have a tax lability or it could be very small.

[SDGO]

Yes I did that so I got AOTC $1938 and my daughter’s tax due only for state is $78 so my next question is it ok to put $12176 as the amount paid for room and board? So that’s box 5 $17282 - $12176 instead of subtracting box 1 to box 5?