Turbo Tax says dependent student age 20 must file form 8615 when only income is "earned" taxable scholarship. This contradicts what Publication 970 says to do.

[TaxedStudent]

Dependent student ages 19-23 has taxable scholarship as box 5 is greater than box 2. Turbo Tax says Form 8615 is being filed on 1040a. Why when Publication 970 categorizes taxable scholarships as "earned income" that you type SCH (amount) next to line 1 of 1040EZ or line 7 of 1040A.

[Carl]

Sounds like a typo to me. Not going to argue the semantics though. But there's no such thing as "earned" scholarship money. It's just "treated" the same as earned income. Basically, if the amount of scholarships/grants received in a tax year, exceeds the amount of qualified expenses they were used to pay for in that same tax year, *AND* the student was paid the difference by the college, then the student pays the taxes on the excess, at the parent's tax rate. So the 8615 is required to show what amount gets taxed at the higher rate, and what that rate is.

Note also that just because box 5 is greater than box 2, does not mean all of box 5 was not used for qualified expenses. After entering the 1098-T, the program asks for qualified expenses not included on the 1098-T. So it's possible that all of box 5 (or more than one might think) was used for qualified expenses.

Regardless of the above, the parents will still claim the student as a dependent on the parent's tax return.

[TaxedStudent]

The excess in box 5 was not earmarked but applied to room, board, student health insurance, student health center fees, and/or transportation. Parent also had self pay in addition to clear the qualified and nonqualified expenses reported on the semester account. There is no way to claim the self pay on the account unless increases income more. Parent also separately self paid the books and supplies. The dependent student did NOT receive schlolarship money back. If student only has taxable scholarships does 8615 have to be filed? No W-2 was issued for taxable scholarships. I thought it was strictly filed on line 1 of 1040EZ or line 7 of 1040A for STUDENT per publication 970. Do I as the parent claim this income on MY return also because Turbo Tax kicked out the university on mine but gave me AOTC for the self paid books.

[Carl]

None of what you listed is a qualified education expense for scholarship/grant money. So it's taxable to you unfortunately. Generally, excess funds are returned to the student in Dec of the tax year, unless there are other outstanding fees still due. In such a case of outstanding fees that are not qualified expenses, the college will use the excess to pay those fees, and that still makes it taxable income to the student.
I'm not well versed in the heath care stuff, but I "think" you can reduce your taxable income by claiming your health insurance cost if any of that money was used to pay it. Technically, "you" paid for your health insurance, if it was paid with scholarship/grant money. but that's dealt with outside of the Education section of the program.

[TaxedStudent]

You are NOT listening nor have you even came close to answering this question correctly. Listen Box 5 is greater than Box 2 as qualified education expenses were deducted. The excess scholarships were applied to the nonqualified education expenses. There was also an account balance I paid also. In addition I SELF PAID course required qualified books.

[macuser_22]

The term "earned income" is defined differently in different parts of the tax code.  Pub 970 deals with educational benefits.   The tax code for the so called "kiddie tax" - form 8615 has it's own definition of earned income.  Scholarship in excess of tuition, if not reported in box 1 on a W-2, is unearned income for the 8615 form.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p17/ch31.html#en_US_2016_publink1000174280">https://www.irs.gov/pub...>
Quote:
"Earned income.   Earned income includes salaries, wages, tips, and other payments received for personal services performed. It doesn't include unearned income as defined next.

Unearned income defined.   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, taxable scholarship and fellowship grants not reported on Form W-2, the taxable part of social security and pension payments, and certain distributions from trusts. Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). "
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The 8615 can be required whether you are claimed or not.

Tax for Certain Children Who Have Unearned Income

If a child's interest, dividends, and other unearned income total more than $2,100, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. If the parent doesn't or can't choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Attach the completed form to the child's Form 1040 or Form 1040A.

Form 8615 must be filed for a child if all of the following statements are true.

   1) The child's unearned income was more than $2,100.

   2) The child is required to file a return for 2016.

   3) The child either:

        a) Was under age 18 at the end of the year,
        b) Was age 18 at the end of the year and didn't have earned income that was more than half of his or her support, or
        c) Was a full-time student at least age 19 and under age 24 at the end of 2016 and didn't have earned income that was more than half of the child's support.

   4) At least one of the child's parents was alive at the end of 2016.

    5) The child doesn't file a joint return for 2016.