Taxes, dependents, and 1098-t

[elegantlion]

I'm working on taxes and this is the first year ds has had any sort of income. It is all on the 1098-t, overage from scholarships and grants. I'm confused on whether he'll need to file taxes. What is the threshold in which he needs to file and does that come from box 5 alone of the difference between box 5 and box 2 (box 5 is higher)? 

 

Dealing with all this paperwork (FAFSA, taxes, and our yearly school scholarship page) makes me feel like Charlton Heston at the end of Planet of the Apes  :cursing: (warning: language). 

 

https://www.youtube.com/watch?v=a5R_pS0h5Qk

[G5052]

I don't know the answer to your question, but  :grouphug: .

 

I've always done ours and have worked through all sorts of oddball situations. I'm mostly self-employed, and I've even gotten through all of that. But this year...

[elegantlion]

I don't know the answer to your question, but  :grouphug: .

 

I've always done ours and have worked through all sorts of oddball situations. I'm mostly self-employed, and I've even gotten through all of that. But this year...

 

My ex was self-employed for many years. I hated doing his taxes, but I made it through them. He was not organized so it was way worse than it should have been. This feels like lots of little areas to pull together though. 

[Sunshine State Sue]

This is my 3rd year as a volunteer tax preparer.

 

Single Dependents under 65 and not blind must file if any of the following apply.

1. Your unearned income was over $1,050
2. Your earned income was over $6,300
3. Your gross income was more than the larger of (a) $1,050 or (b) Your eanred income (up to $5,950) plus $350.

 

Unearned income includes taxable interest, ordinary dividends, and capital gain distributions.  If also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.  Earned income includes salaries, wages, tips, professional  fees, and taxable scholarship and fellowship grants.  Gross income is the total of your unearned and earned income.

 

If I understand correctly then, if box 5 was $6,300 or more than box 2, then he would have to file.  For example, if box 2 (tuition and fees) was $1000 and box 5 (scholarship) was $7,000, then his earned income would be $6,000 and he does not have to file.

 

HTH!

Edited February 1, 2016 by Sue in St Pete

[elegantlion]

This is my 3rd year as a volunteer tax preparer.

 

Single Dependents under 65 and not blind must file if any of the following apply.

1. Your unearned income was over $1,050
2. Your earned income was over $6,300
3. Your gross income was more than the larger of (a) $1,050 or (b) Your eanred income (up to $5,950) plus $350.

 

Unearned income includes taxable interest, ordinary dividends, and capital gain distributions.  If also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust.  Earned income includes salaries, wages, tips, professional  fees, and taxable scholarship and fellowship grants.  Gross income is the total of your unearned and earned income.

 

If I understand correctly then, if box 5 was $6,300 or more than box 2, then he would have to file.  For example, if box 2 (tuition and fees) was $1000 and box 5 (scholarship) was $7,000, then his earned income would be $6,000 and he does not have to file.

 

HTH!

Very helpful, thank you. 

[8filltheheart]

Scholarship and grant $$ which exceed QEE (tuition, fees, books required for courses) is considered unearned income and is taxed at the kiddie tax rate. https://www.irs.gov/pub/irs-pdf/i8615.pdf

ETA: 970 also discusses this subject. https://www.irs.gov/pub/irs-pdf/p970.pdf

Edited February 1, 2016 by 8FillTheHeart

[Sunshine State Sue]

Ok. I'm confused. Earned income includes taxable parts of scholarships/grants. Only tuition/books/required fees are not taxable.

So in my son's case-- his is totally paid thru scholarships/grant. So if box 2 is 8000 tuition ( the taxable stuff) and box 5 is 14000, he assumed he's required to use the 14000 amount as gross income.

Has he been doing his taxes incorrectly for 2 years??

ETA-- I think he does subtract the amount of books, tho, from the box 5 amount.

No.  14000(scholarship)-8000(tuition)=6000 taxable scholarship=earned income

 

Yes, add books to the 8000.

 

He pays taxes on the scholarship amount that exceeds tuition, fees, books, supplies.

[8filltheheart]

Sue, it is considered taxable unearned income, not earned income.

 

If the child's unearned income is more than $2,100, use Form 8615 to figure the child's tax.

Unearned Income

For Form 8615, “unearned income†includes all taxable income other than earned income as defined later. Unearned income includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, etc. It also includes taxable social security benefits, pension and annuity income, taxable scholarship and fellowship grants not reported on Form W-2, unemployment compensation, alimony, and income (other than earned income) received as the beneficiary of a trust.

Who Must File

Form 8615 must be filed for any child who meets all of the following conditions.

1. The child had more than $2,100 of unearned income.

2. The child is required to file a tax return. 3. The child either:

a. Was under age 18 at the end of 2015,

b. Was age 18 at the end of 2015 and did not have earned income that was more than half of the child's support, or

c. Was a full-time student at least age 19 and under age 24 at the end of 2015 and did not have earned income that was more than half of the child's support.

Edited February 1, 2016 by 8FillTheHeart

[Sunshine State Sue]

8, kinda confused.  Filing Requirements for Dependents in Publication 17, page 7 in the PDF states:

earned income includes salaries, wages, tips, and professional fees. It also includes taxable scholarship and fellowship grants. Unearned income includes investment-type income such as taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, cancellation of debt, and distributions of unearned income from a trust. Gross income is the total of your earned and unearned income.

This led me to believe it was earned income.  :confused1:  However, you are probably right because I don't personally have this situation, and I think you do.

 

Oh I see it now.  I have never seen this as a volunteer because form 8615 is out of scope for us. 

 

ETA:  Nice to see you back!  :seeya:

Edited February 1, 2016 by Sue in St Pete

[8filltheheart]

Thanks. :). Life is super busy.

 

I wish it were earned income, bc the kiddie rate tax is high for our family. We ended up having to make quarterly payments on his scholarship $$ for this yr bc the amt owed was greater than the threshold. Fwiw, even tax software like TurboTax will file it as unearned income for federal taxes. State tax laws vary.

[Pegasus]

It's pretty confusing but the grants and scholarships that do not go to QEE are added to earned income to determine if an individual needs to file a tax return,

 

However, grants and scholarships that are taxable income (in excess of QEE) and NOT reported on a W-2 are considered unearned income when filling out form 8615.

[Crimson Wife]

We've had a lot of weird tax situations over the years but 2015 is turning out to be the biggest headache since '98, the year we got married. I had income that year in 3 different states (CA, MA, and KY) and DH had income in 2 (CA and DE).

 

This year DH vested in some of his stock options and cashed them out. That's headache #1.

 

I also went back to school and paid for it via a 529 distribution. My qualified expenses exceed the distribution so it's supposed to be tax-free but annoyingly TurboTax is treating the distribution like it's fully taxable. TT says that our income was too high to qualify for any education-related credits or tax deductions. Fine, but we're not trying to claim any of those. All we're trying to get TT to do is not add the 529 distribution to our taxable income.

[Sunshine State Sue]

It's pretty confusing but the grants and scholarships that do not go to QEE are added to earned income to determine if an individual needs to file a tax return,

 

However, grants and scholarships that are taxable income (in excess of QEE) and NOT reported on a W-2 are considered unearned income when filling out form 8615.

 

Thanks, Pegasus.  I understand it better now.

 

[MerryAtHope]

I'm glad for all of these tax conversations as they helped with the learning curve this year!

[Tsuga]

Okay, I'll bite.

 

How can he have an overage on scholarships but not be able to do his taxes?

 

:~(

 

I guess I'm the idiot because I've done my taxes since the age of 15 and have never gotten an "overage on scholarships". Spending my time the wrong way I guess.

[Sunshine State Sue]

Tsuga, I don't understand your question.  Are you saying that a student who has worked hard and made himself so attractive to a school that they offered him a tremendous scholarship and is (I assume) working diligently at his job as student, should be finding the time to work on the complexities of his own taxes instead of accepting his parent's assistance? 

[elegantlion]

I'm glad for all of these tax conversations as they helped with the learning curve this year!

 

I'm glad I asked too. 

 

Okay, I'll bite.

 

How can he have an overage on scholarships but not be able to do his taxes?

 

:~(

 

I guess I'm the idiot because I've done my taxes since the age of 15 and have never gotten an "overage on scholarships". Spending my time the wrong way I guess.

 

Hm, not sure I understand the question either. Are you saying that I'm saying my son is physically or intellectually incapable of doing his own taxes? If so, that was not the question and I don't appreciate the implication. As a student myself and someone who used to self-employed taxes, I want to ensure I know if he even needs to file and, as you can see, there is conflicting info in this thread. 

 

As for the "overage of scholarships," box five includes scholarships and grants. As for how that number came to be an overage, well, I'm not sure I need to explain that. 

[8filltheheart]

Technically, kids canNOT file taxes without their parental input if they have scholarship overages b/c it is taxed at the parental unearned tax rate.  How is a student expected to know how to handle that w/o their parents??

 

And, yes, it is possible to be awarded more scholarship $$ than just tuition, fees, and books.  Any scholarship $$ that goes toward living expenses (room/board) is considered taxable income.  Only QEE (qualified educational expenses) are not taxed.

[angela in ohio]

Okay, I'll bite.

 

How can he have an overage on scholarships but not be able to do his taxes?

 

:~(

 

I guess I'm the idiot because I've done my taxes since the age of 15 and have never gotten an "overage on scholarships". Spending my time the wrong way I guess.

 

For my dd, it's because she won a competitive research grant for the summer on top of her large scholarship and financial aid package. It makes her taxes complicated, and even though I used to work as a paid preparer I still called in help (my mum is an Enrolled Agent with the IRS.)

[Joules]

AACK! Ds just got a 1098-T for Dual Enrollment!  It's free in our state, but I had no idea it created a taxable event.  We've been working on our taxes and FAFSA (and my dad's taxes) and I thought I was done!

 

So the amount billed (box 2) is about three times the scholarship amount (box 5).  From the directions, one would think there is something deductible, but we didn't actually pay anything, so that wouldn't be very honest.  I guess the college discounts the amount for the state.  Since these are entirely imaginary numbers, I really have no clue what to do. 

:confused1:

 

Guess I'm off to do more research. 

[Pegasus]

AACK! Ds just got a 1098-T for Dual Enrollment!  It's free in our state, but I had no idea it created a taxable event.  We've been working on our taxes and FAFSA (and my dad's taxes) and I thought I was done!

 

So the amount billed (box 2) is about three times the scholarship amount (box 5).  From the directions, one would think there is something deductible, but we didn't actually pay anything, so that wouldn't be very honest.  I guess the college discounts the amount for the state.  Since these are entirely imaginary numbers, I really have no clue what to do. 

:confused1:

 

Guess I'm off to do more research. 

First, the 1098-T forms are often wrong, so be sure to call and ask if something doesn't make sense.

 

Second, if box 7 is checked, this means that the school included the amount billed for Spring 2016 in box 2.  This is common.

 

Third, box 5 includes only the scholarships actually applied to the account in 2015 (so, probably just Fall 2015 unless your student also got a scholarship for Spring 2015).  Scholarship amounts are usually applied in January for the Spring semester.

[Heather in VA]

A question about scholarship becoming income... Does scholarship that is over tuition but under room and board still taxable or is the scholarship only considered overage if it exceeds all school related expenses? 

 

Also, on the dual enrollment stuff, we pay for dual enrollment in my state but I was under the impression that it was not deductible because it's technically high school, just like I wouldn't be able to deduct private school tuition. Is that true?

[Heather in VA]

Room and board scholarships are taxable. Tuition, fees, books, are not.

 

 

Thanks - my current college student's scholarships cover tuition but not the other stuff. My current senior's scholarship offers are creeping toward that kind of overage. (yippee ... for the most part LOL) so this is good to know.

[Sunshine State Sue]

Does scholarship that is over tuition but under room and board still taxable or is the scholarship only considered overage if it exceeds all school related expenses?

Your overage is scholarship money that exceeds Qualified Education Expenses (QEE).  This includes tuition, some fees, books, notebooks, etc.  Some of the fees that you see on your tuition bill qualify and some don't.  I just go by Box 2.  I might have tried to figure it out once...

 

Qualified expenses are amounts paid for tuition, fees and other related expense for an eligible student that are required for enrollment or attendance at an eligible educational institution.

 

Also, on the dual enrollment stuff, we pay for dual enrollment in my state but I was under the impression that it was not deductible because it's technically high school, just like I wouldn't be able to deduct private school tuition. Is that true?

I believe that is correct.

Edited February 6, 2016 by Sue in St Pete

[Pegasus]

 

Also, on the dual enrollment stuff, we pay for dual enrollment in my state but I was under the impression that it was not deductible because it's technically high school, just like I wouldn't be able to deduct private school tuition. Is that true?

 

I took the Lifetime Learning Credit (not AOTC) for tuition costs for dual enrollment.  I don't have the IRS guidance for this at my fingertips but I researched it thoroughly at the time and found specific examples from IRS pubs to support this.  Also, Turbo Tax led me through the process to include the LLC.  It specifically asked if DD was still in high school.

 

I'll try to help find the language from IRS and post it when I have time.

 

Oh, one difference between AOTC and LLC is that you can use textbooks as QEE for AOTC but not LLC.

 

Plus, once a student starts full-time college, they CAN include costs for dual enrollment from the spring semester in with their costs for college in fall semester for that first year to claim AOTC.

Edited February 6, 2016 by Pegasus

[Pegasus]

Thanks - my current college student's scholarships cover tuition but not the other stuff. My current senior's scholarship offers are creeping toward that kind of overage. (yippee ... for the most part LOL) so this is good to know.

 

It's important to differentiate between scholarships that MUST be applied to tuition and ones that CAN be applied to tuition. It is often more advantageous to apply some of the scholarship money (if allowed by the scholarship) to non-QEE and then use the QEE expenses to claim AOTC.

 

Here's a document straight from the IRS that discusses this strategy.

 

https://www.irs.gov/pub/irs-utl/Pell%20AOTC%204%20pager.pdf

 

 

[Pegasus]

 

I'll try to help find the language from IRS and post it when I have time.

 

IRS Publication 970 covers educational credits (https://www.irs.gov/pub/irs-pdf/p970.pdf).  Here is what it states on page 28 regarding the lifetime learning credit:

 

Who Is an Eligible Student? For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution.

 

There is also an interactive tax assistant on the IRS website that leads you through several questions and lets you know if you are eligible for the various education credits (https://apps.irs.gov/app/IPAR/investigate/IPAR_1/en-US/Attribute~EDCR_interview_complete~global~global/qs%24s2%40TLC_EducationCredits_Development_Screens_EDCRLanding_xint%24global%24global?user=guest)

 

I just went through it for a high school student taking part-time (less than half-time) college courses (so at an eligible school and as part of a post-secondary degree program but NOT towards a degree). 

 

Here's my results:

 

Can I claim the American Opportunity Credit, the Lifetime Learning Credit, or the Tuition and Fees Deduction?

You are not eligible to claim the American opportunity credit.

The student was not enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period beginning during 2015.

 

You are eligible to claim the lifetime learning credit.

You can claim qualified education expenses which are:

• Tuition,
• Expenses for course-related books, supplies, and equipment that must be paid to the institution as a condition of enrollment or attendance, and
• Student-activity fees related to an academic course of instruction

You are eligible to claim the tuition and fees deduction.

You can claim qualified education expenses which are:

• Tuition,
• Expenses for course-related books, supplies, and equipment that must be paid to the institution as a condition of enrollment or attendance, and
• Student-activity fees related to an academic course of instruction

How do I claim the credit or deduction?

Complete Form 8863, Education Credits, to calculate the education credit and attach it to your tax return.

 

As you qualify to claim more than one education benefit, you must choose which education benefit to claim.

 

If you choose to claim the tuition and fees deduction rather than a credit, complete Form 8917, Tuition and Fees Deduction, to calculate your tuition and fees deduction and attach it to your tax return. Enter the deduction on your Form 1040 or 1040A on the line labeled, "Tuition and Fees Deduction".