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Kiddie tax and taxable scholarships

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Replies to: Kiddie tax and taxable scholarships

  • airway1airway1 Registered User Posts: 605 Member
    Just did my kids taxes and crazy state and federal tax on income from scholarships.. double taxation. 12000 deductible and books cost deducted (2500 max)
  • brantlybrantly Registered User Posts: 3,686 Senior Member
    @alooknac Standard deduction for a dependent CAN be $12k, but it is not AUTOMATICALLY $12k.

    This is verbatim from the IRS:
    Standard Deduction for Dependents
    The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of:

    $1,050, or
    The individual's earned income for the year plus $350 (but not more than the regular standard deduction amount, generally $12,000).


    IRS Publication 501 (2018)
    https://www.irs.gov/publications/p501
    Scroll aaaallll the way down to the heading
    Standard Deduction for Dependents

    IRS Worksheet for Standard Deduction for Dependents
    https://www.irs.gov/publications/p501#en_US_2018_publink100022921
    Scroll to Table 8: Standard Deduction Worksheet for Dependents
  • SeeksKnowledgeSeeksKnowledge Registered User Posts: 196 Junior Member
    I just went back and looked at my daughters tax return that I did with turbo tax. We claim her as a dependent, and sure enough her standard deduction was her earned income + 350 as has been reported above.

    Learned something new, I did not realize they didn't get the whole 12k deduction.
  • brantlybrantly Registered User Posts: 3,686 Senior Member
    @twoinanddone I think you meant to say, "any scholarship amount that is *NOT* QEE counts as earned income. The rest is on the nose.
  • mommdcmommdc Registered User Posts: 11,185 Senior Member
    For a dependent child who lives with you (other than temporary absence for college), it doesn't matter how much they earned, but rather how much of the earnings they spent on their own support as far as I know.
  • DoinResearchDoinResearch Registered User Posts: 412 Member
    edited May 17
    Hi all,
    I just read the NY times article, and thank you for this thread. I'm trying to get on top of this topic as D19 will be attending a school that meets 100% need, which after the loan, and the amount my D is contributing from part time work, comes to a payment from us parents of about $2800. Yes, I realize this is a very good problem to have, but I am concerned about being prepared for taxes. D19 was just awarded a $1500 scholarship, renewable for all years of college. D19 works part time, and is a dependent. Let's put her 2019 income at $6000. The amount of non-tuition scholarship is $7465 (towards Room & Board). Her income will be 6000+7465= 13465. If I understand it correctly, she'll receive the standard deduction of 12K. Does this mean that the 13465 income -12000 standard deduction = 1465 is what is taxable? Or is the 13465 the taxable amount? I'm confused how @BelknapPoint #3 post with the tax rates at different levels works with a standard deduction. I know this is basic information I should understand. I want to be sure we're prepared for the tax that comes with these very generous scholarships, as we can't easily absorb a large payment come 4/15/2020. We do have some 529 $, but that can't be used for taxes.
  • mommdcmommdc Registered User Posts: 11,185 Senior Member
    Support for child doesn't just cover tuition, also food/housing during breaks, and health insurance.
    IRS website has a support test worksheet.

    The need based aid the student receives, also scholarships and grants, is not student provided support. But work earnings and student loan proceeds are.
  • mommdcmommdc Registered User Posts: 11,185 Senior Member
    You might qualify for AOTC on the amount you or your daughter pay towards tuition/fees/books, and a dependent credit of $500.

    You can estimate the tax amount due and save that up during the year.
  • DoinResearchDoinResearch Registered User Posts: 412 Member
    @mommdc I am trying to figure out an estimated tax due, so that we can make the adjustment in withholding now. I just don't understand if we're taxed on her part time job/work study job income combined with non tuition scholarship as a total figure, or less due to standard deduction for $12K. And yes, AOTC might kick in, just to add another moving part into the mix. Reading the NY Times article - it seemed that the non tuition scholarship amount ( for us $7465) was going to be taxed at 37%, and I've read this thread completely 3 times over, and I'm not clear what's taxable when a standard deduction is considered. We definitely support D19, she's a dependent, no question there. I can fiddle with turbo tax, but I find like to have a basic understanding.
  • 3scoutsmom3scoutsmom Registered User Posts: 5,719 Senior Member
    @DoingResearch just to be clear the student is taxed not you. Also most scholarships are paid out by the semester and since there's only one semester in the first tax year your student is in college they'll likely be fine for taxes the first year. The next tax year will have two semesters and that the one to be prepard for!
  • BelknapPointBelknapPoint Registered User Posts: 4,261 Senior Member
    Reading the NY Times article - it seemed that the non tuition scholarship amount ( for us $7465) was going to be taxed at 37%, and I've read this thread completely 3 times over, and I'm not clear what's taxable when a standard deduction is considered.

    I'm not reading the NY Times article because it wants me to log in or create a free account. But... your child will only be taxed at the 37% rate on any part of the income subject to the kiddie tax that exceeds $12,750.

    Does this mean that the 13465 income -12000 standard deduction = 1465 is what is taxable? Or is the 13465 the taxable amount?

    It's all "taxable," but the $12k deduction means that tax will only be computed on $1,465. Use 2018 tax forms and instructions, available at the IRS website (https://apps.irs.gov/app/picklist/list/formsPublications.html), and 2019 tax rates (https://www.forbes.com/sites/kellyphillipserb/2018/11/15/irs-announces-2019-tax-rates-standard-deduction-amounts-and-more/#6985d7062081) to do a hypothetical 2019 run-through for your daughter. Make sure you look at IRS form 8615 (the kiddie tax) and its instructions to see if it applies, and if it does use it in your 2019 estimate.

    The first year in college, especially with taxable scholarships and trying to utilize tax credits, can be very confusing. The second year and subsequent years are much easier. You are very smart to be thinking about this now instead of trying to hash it all out next spring.
  • BelknapPointBelknapPoint Registered User Posts: 4,261 Senior Member
    Also most scholarships are paid out by the semester and since there's only one semester in the first tax year your student is in college they'll likely be fine for taxes the first year.

    Many schools bill for and apply scholarships to the spring semester before the end of the calendar year. Be prepared for spring semester scholarships to count as income to the student for the previous tax year.
  • 3scoutsmom3scoutsmom Registered User Posts: 5,719 Senior Member
    @BelknapPoint I'll take your word for it, you have far more exerience with this stuff that I do but this is how it worked out for two of my kids at two different colleges so I guess it's something to check into?
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