Scholarships are not in either definition, so what if earnings from work are below the threshold for filing, but adding in excess scholarship funds would put it over the threshold? Is a tax return then required?
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The real question is : Is it taxable or not. See below to determine the answer.
Did you get a W-2 or other reporting statement? Do you teach or do research in exchange for tuition?
According to the IRS, a scholarship or fellowship is tax free to the extents it doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship. (But for exceptions, see Payment for services in Publication 970).
However, if you’re getting a degree at an eligible school, your scholarship is tax-free when used for:
If you use your scholarship to pay for any of these, it counts as income and the amount paid is taxable:
It doesn’t represent payment for teaching, research, or other services required as a condition for receiving the scholarship. (But for exceptions, see Payment for services in Publication 970).
For example, if you used your scholarship to pay for tuition and room and board, you would be taxed on the room and board payment but not tuition.
The original question is still an important one: is it earned or unearned income (apart from taxation)?
Earned income could be used to donate to an IRA. Unearned income can't. So, can someone invest their excess sholarship money into an IRA or not?
Taxable scholarships are a "hybrid" income category. They are unearned income for most purposes, including the "kiddie tax". But taxable scholarships are treated as earned income for purposes of a student-dependent's standard deduction.
Earned income includes money from wages, salaries, tips, bonuses, commissions, and self-employment income. Also, the IRS considers disability retirement benefits as earned income until you reach the age at which you could have received a pension or annuity if you didn't have a disability.
FYI, I found the following very helpful answer to my question in another TurboTax forum post (by Hal_Al:(
"Actually the answer is yes & no.
Scholarships are not earned income for purpose of refundable credits like EIC. It is not earned income for eligibility for an IRA contribution*.
It is earned income for purposes of calculating a student-dependent's Standard deduction.
*Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2."
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