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State Income tax for student

Christian2Christian2 Posts: 855Registered User Member
edited March 2010 in Parents Forum
I need some help here. My son, attending ASU, has worked in both California and Arizona last year. He also has a scholarship that covers more than qualify tuition and fees from ASU. We are not claiming him as our dependent in our tax return. Is he considered to be a part time resident as far as income tax is concern for both states? Or is he still considered to be a California resident and will be taxed on his ASU scholarship and Arizona earnings by California? Are there options for him in how to file his state income tax? Thank you.
Post edited by Christian2 on
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Replies to: State Income tax for student

  • bigtreesbigtrees Posts: 1,191User Awaiting Email Confirmation Senior Member
    Arizona tax law says that any income attributable to Arizona is taxed by Arizona. So I'd say that if he got the scholarship from ASU, that would be attributable to Arizona. Or if he got the scholarship from an entity in Arizona. If the got the scholarship elsewhere, I don't think that would necessarily be attributable by Arizona.

    California and Arizona should have a recipriocal agreement that allows you to not pay taxes on income from both states.
  • RacinReaverRacinReaver Posts: 6,598Registered User Senior Member
    I seem to remember reading somewhere that scholarship income isn't taxable anyway, since you're not providing a service for the money you're getting (was trying to figure out how my grad stipend was going to be taxed).

    If he earned money from an outside job, though, he'll need to file a state return of both Arizona and CA, though you shouldn't need to report the money he made in AZ to CA.
  • bigtreesbigtrees Posts: 1,191User Awaiting Email Confirmation Senior Member
    RacinReaver,

    Scholarship money is very taxable depending on how much you get. The part that covers tuition I believe is nontaxable but anything beyond will be taxable (maybe).
  • RacinReaverRacinReaver Posts: 6,598Registered User Senior Member
    Perhaps it's on state taxes, then. I remember last year when I was only taking classes getting a letter from the school saying I got X money to pay for tuition any Y money to support me with "no services rendered" which was the exact phrase used for something dealing with stipends or scholarships that exempted you from considering them a certain kind of income.

    Of course this year I'm doing research full time, so the government's getting its fair share. :(
  • Christian2Christian2 Posts: 855Registered User Member
    RacinReaver, do you mean California will not tax any scholarship while "no services rendered"? Did you just not report it in your California state tax return? Thanks.
  • RacinReaverRacinReaver Posts: 6,598Registered User Senior Member
    I forget if it was CA or federal government, but I did have to report it, but it was under some other category other than the typical income where it was counted at a different rate than other income. I don't remember too well, though, since it was in the previous tax cycle that I dealt with that. :(

    (Also, I think the phrase was "no services rendered," but I might be wrong. I just remember reading the letter they sent me, then reading the tax code and seeing exactly the same phrase.)
  • swimcatsmomswimcatsmom Posts: 15,013Registered User Senior Member
    ^^ Must have been for state taxes as there is no different rate taxable scholarships/grants in federal taxes. For federal taxes any scholarships/grants in excess of tuition/fees/required books are taxable income. If there is sufficient income to require a federal tax return the taxable scholarships/grants are treated as earned income for tax purposes (they are actually reported in with wages). There is no different tax rate for them.
  • SEA_tideSEA_tide Posts: 3,668Registered User Senior Member
    I'm a resident of a state with no income tax (WA) and go to school in a state with an income tax (AL). From my understanding, anything I earn while in AL, be it wages or excess scholarship is taxable and I would file taxes as a nonresident. If WA had an income tax, I'd report all monies earned, regardless of where I earned them, but would claim a credit for AL taxes paid. If state income taxes work like the Federal income tax, he is filing his own return anyway and claiming him as a dependent only changes his tax credits.
  • swimcatsmomswimcatsmom Posts: 15,013Registered User Senior Member
    For federal taxes being able to be claimed as a dependent on someone elses taxes means the student can take the standard deduction ($5700) but not the personal exemption ($3650). The person who can claim you takes the exemption as a dependent exemption (same $3650 amount, just different name).
  • Christian2Christian2 Posts: 855Registered User Member
    My son will file as an independent person. We will not claim him as our dependent. With his scholarship, summer and regular school year earnings, he can support more than half of his living expenses. In doing so, he can claim the $2500 American Opportunity credit in Federal income tax. However, he is still considered to be a California resident though he only stay home during summer last year. The California state income tax is very high. I just wonder if his earnings in Arizona, both from scholarship and work, will count in his California State income tax.
  • swimcatsmomswimcatsmom Posts: 15,013Registered User Senior Member
    ^^^^One thing to check on. My understanding is that to be eligible for the refundable part of the AOC the student must have earned income high enough to show he provided more than half his own income. Scholarship income does not count towards providing 1/2 the student's own support and it does not count toward providing more than half their own support for the AOC. I was really disapointed when I realized my daughter would not be eligible for the refundable part of the AOC on her own tax return.
    Refundable Part of Credit
    Forty percent of the American opportunity credit is refundable for most taxpayers. However, if you were under age 24 at the end of 2009 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, your allowed credit (figured on Form 8863, Part V) will be used to reduce your tax as a nonrefundable credit only.
    You do not qualify for a refund if items 1, 2, and 3 below apply to you.
    1. You were:
    a. Under age 18 at the end of 2009, or
    b. Age 18 at the end of 2009 and your earned income (defined below) was less than one-half of your support (defined below), or
    c. A full-time student over age 18 and under age 24 at the end of 2009 and your earned income (defined below) was less than one-half of your support (defined below).
    2. At least one of your parents was alive at the end of 2009.
    3. You are not filing a joint return for 2009.
    Earned income. Examples of earned income include wages, salaries, tips, and other taxable employee pay; net earnings from self-employment; and gross income received as a statutory employee.

    Whether the state counts toward State income would depends on the state's own tax rules. I know for my daughter her taxable scholarships are considered income for state tax purposes.
  • msmayormsmayor Posts: 317Registered User Member
    With respect to residency, answer this question: which state is he registered to vote in? What state issued his driver's license? THAT is considered the home state; the state of residence. The other state he would file as a non-resident.
  • nngmmnngmm Posts: 5,708Registered User Senior Member
    Can a student on a scholarship that covers all educational expenses still get AOC?
  • Christian2Christian2 Posts: 855Registered User Member
    Thank you for some very good information. To swimcatsmom: you are correct that scholarship does not count toward student's support but it does reduce the support a student need. For example, if a student receives a full ride including room and board, his support need will be greatly reduced. In that scenario, a student who earns $9000 during summer and the school year can provide more than half of the support he needs. The key is that he shall not be claimed as a dependent on any other person's tax return. To nngmm: it depends. If one receives a scholarship that does not specify what it is for, one can use part of the scholarship to cover qualify tuition and expenses and the rest as taxable income. As long as there are still qualify tuition and expense left, one can get AOC assuming all other conditions are satisfied. For example, a student received an annual scholarship of $24,000 while the qualify tuition and expense for that school is $20,000. He can use $16,000 to cover part of the qualify tuition and expense with $4000 left behind, $8000 of the scholarship will be counted as part of his taxable income while he can claim $2500 AOC credit assuming all other qualifying conditions are satisfied.
  • swimcatsmomswimcatsmom Posts: 15,013Registered User Senior Member
    Yes if the student earned that much then they should be able justify earned income of more than 50% of their support. My son is in the same boat as he had a good paid summer internship so is able to take the AOC and get the refundable part. My daughter didn't make anywhere near enough to be able to say her earned income was >50% of her support last year - summer jobs where she goes to school were non existent last summer (she lived there and took some classes). She is getting slammed for taxes on her scholarships (we are getting the credit and paying the taxes but she would have been much better off if she could have claimed it and got the refundable credit and the taxes covered). His income is way higher and he is getting a nice refund.

    We do the same as you are saying with making part of the scholarship/grants taxable (not designated for tuition) and claiming the credit. From researching it heavily online, it seems this is permissible so I am hoping it is ok. Have you had expert advice that has said you can do this?
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