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scholarships & dependent or independent on tax returns

somemomsomemom Registered User Posts: 10,860 Senior Member
If your student has earned a significant net income from scholarships on the 1098T do you have the option to have them eligible for the larger ($*K+) standard deduction or do you have to claim them as a dependent?

In our case D got more $ from school & work than from us...yay! But in reading IRS 501 it sounds like scholar $ don't count in that total.

Any experience here?
Post edited by somemom on

Replies to: scholarships & dependent or independent on tax returns

  • xiggixiggi Registered User Posts: 25,441 Senior Member
    The instructions from the IRS are not conclusive and somewhat contradictory. Were you to call the IRS on this precise issue, you'll get different positions.

    My suggestion is to run both scenarios and report the one that is more advantageous to your family. The difference will not be that great. Keep all your records and make sure to document your position. The key is to report the scholarship income ... on one of the returns. From conversations with studenst who have scholarship income, it appears that many of them simply do not report it; and this is a very bad idea.

    PS Also make sure to check for all the deductions that offset the taxable scholarships.
  • jerzgrlmomjerzgrlmom Registered User Posts: 1,245 Senior Member
    Do we report both merit scholarships and financial aid grants in the same way? I think we're in the same position as somemom. Our DD has more merit scholarship/grant $ from her school than we contributed - but she didn't have earnings of her own to file her own taxes.

    Taking the tuition deduction on line 34 of the 1040 reduces our AGI by $4000 so that's good for us, but what do we need to do to offset that?

    In the Profile, there's the section that asks the amt the student received in scholarships and grants so I assume we include merit scholarship and FA grants in this section. On our original Profile we didn't deal with the tuition deduction (on our taxes) since I'm not sure we even knew about this deduction back then. So, now updating the profile, PI-195 it asks the amt of any tuition and fees deduction your parents claimed on their 06 1040 - so I guess we need to put the $4000 deduction here. Does that sound right?

    A couple college FA offices I talked to said they weren't sure since it was so new - a few said they would make changes to the original Profile when they looked at our tax forms - that we don't need to send in updates.
  • somemomsomemom Registered User Posts: 10,860 Senior Member
    Hmm, it never ocurred to me that the 1098T $ could go on my return, it came in the kids names, so I always put it on their returns- interesting thoughts!

    But, if the 1098T has a net positive- more money in grants & scholarships than tuition, then no Hope or Lifelong learning credits, as the tuition was paid by the grants & awards.
  • guitars_girlsguitars_girls Registered User Posts: 192 Junior Member
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