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Jen500

scholarship and tax payment??

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Both of my ds college freshman received a scholarship that covers tuition specifically, and then room/board/expenses. So I understand that the room/board/expenses part is taxable. 

My understanding is that they both have to file their own tax return, and will check the box 'can be claimed as a dependent'. But who enters the 1098-T info? The student or the parent? Who actually pays the tax on the taxable portion of the scholarship?

When I did a trial tax return for ds using Turbotax, I entered the above, and there was $0 tax due. (He has no other income). Am I (parent) supposed to enter his 1098-T and pay the tax? I thought that his own tax return using Turbotax would have him pay the tax.

 

I am so confused and I seem to read conflicting statements (or most likely I just don't understand).

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2 hours ago, Jen500 said:

Both of my ds college freshman received a scholarship that covers tuition specifically, and then room/board/expenses. So I understand that the room/board/expenses part is taxable. 

My understanding is that they both have to file their own tax return, and will check the box 'can be claimed as a dependent'. But who enters the 1098-T info? The student or the parent? Who actually pays the tax on the taxable portion of the scholarship?

When I did a trial tax return for ds using Turbotax, I entered the above, and there was $0 tax due. (He has no other income). Am I (parent) supposed to enter his 1098-T and pay the tax? I thought that his own tax return using Turbotax would have him pay the tax.

 

I am so confused and I seem to read conflicting statements (or most likely I just don't understand).

No.  The student puts it on theirs.  THe scholarships are only taxed if they exceed their standard deduction.  We haven't done our taxes yet, but I am pretty sure dd will not owe anything on her scholarship, either.

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1098-T only covers tuition. The value of the scholarship beyond what's on the 1098-T is the taxable part. While tax software may ask about 1098-T's, it's just to figure out deductions or eligibility for tax credits, it's not sent directly to the IRS.

If you did something potentially taxable, like removing money from a 529 plan that was overcontributed due to the scholarship, you may need to enter the 1098-T as a parent, but generally, it's just part of figuring out the student's tax return in this particular scenario.

If you are a 'normal' parent trying to justify your 529 withdrawals or get the AOTC tax credit, you'd save the 1098 for your own records. In that scenario, the parent is generally in the higher tax bracket and would be the one taking the tax credit.

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There is another very recent thread here on WTM (not sure where it is) about the AOTC Tax Credit and how to do that. It was very interesting to me, because when I followed the link to the U.S. Treasury Dept. web page their article encourages people to do that, if they qualify, to get a larger Credit.   Something to research.  

I agree that the person whose SS # is on the Tax reporting forms is the one to declare it on their U.S. Federal Income Tax return.  

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My tax advisor says that the 1098 scholarship income can go on the student's taxes or parents assuming the student is a dependent.

If the scholarship goes on the student taxes, then there still may be no taxes due since they have a deduction even if claimed as a dependent on someone else's taxes.

For the AOTC tax credit, it might be better to be on the parent's taxes.

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I read an additional article about this (I think it was in my Google Feed on my phone) and it may be that the part for Room and Board needs to go on the Parents tax return, if the student is a "dependent".  I wish that I had a link to that article. Something to be explored...

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