External scholarship tax question

My DS won $1500 scholarship at SciOly nationals and the check was sent to Vanderbilt, but Vanderbilt issued a check to my DS this week. I am not sure why they did it that way. May be because he has full tuition scholarship and paid all other fees already. for current semester?

Does he need to pay tax on the amount? We are in high tax bracket and subject to AMT. He did buy a laptop for a CS class. Does it qualify as an educational expense?

A scholarship used to purchase a laptop computer (or any course-related expenses, such as fees, books, supplies, and equipment) is tax-free if it is required of all students in the course of instruction.

If the Vanderbilt scholarship is specifically restricted to cover tuition (and covers all of tuition), then you can’t allocate the outside scholarship to tuition expenses.

But you could allocate the outside scholarship (if allowed by it’s terms) to qualified fees and book expenses. It would then be tax free.

I think if your MAGI as married filing jointly is under $180,000 you should be able to claim the AOTC for fees and books.

You would then have your son report the outside scholarship as taxable income on his tax return, but if his income doesn’t exceed his standard deduction, he would not actually owe any tax on it.

@mommdc - Vandy scholarship covers full tuition but not any of the fees. However we paid the fees before scholarship money was sent. Also, scholarship doesn’t have any restrictions. our MAGI is over $180K.

My son doesn’t have any other income and we claim him as a dependent.

Then if you cannot utilize the AOTC tax credit, you could simply allocate the $1,500 to fees and textbooks he had to buy. Is that adding up to $1,500?

Did you pay the fees and room and board with 529 funds?

I take the bill from the school and then take the list of scholarships and grants and match up what paid for what. Anything that isn’t QEE paid for with any type of scholarship or grant is most likely taxable on daughter’s taxes (r&b, insurance, any refund of Pell money but NOT loan money). I keep everything in the same tax year.

But basically yes, an outside scholarship is taxable unless you can use it to pay for a QEE.

@mommdc - fees and books should come close to $1500 and we didn’t use 529.

You can use the $1500 scholarship for any qualified educational expenses. Even if you already paid them directly. You can line up all the QEEs for this year. Most covered by full tuition scholarship. As long as there are other QEEs that weren’t otherwise covered by scholarships, you can use the $1500 to cover (including reimbursing you for QEEs you paid yourself).

Yes, then that should work nicely.The tuition scholarship would be tax free and the $1,500 outside scholarship should also be tax free if it paid for qualified fees and books of $1,500 during the 2017 tax year (the same year the outside scholarship was received).

Simple answer on scholarships is that if the external scholarship check is made payable to the school, the amount is not taxable income for the student. If an external scholarship check is made payable to the student, and a 1099 is issued, it is taxable income, but may be deductible if used for qualified educational expenses.

This is not true. If all of the student’s qualified education expenses are being covered by other funds that are tax advantaged, it doesn’t matter to whom the external scholarship check is made payable. It will need to be reported as taxable income for the student.

And you won’t necessarily get a 1099. My kids each got a $2000 check written directly to her from an alum group their grandfather belonged to. Never saw another document about those checks, no letter to the universities, no 1099, not included with the school 1098-T even though it was reported to both schools. I don’t think the application asked for their SSN to issue a 1099.

It was just a ‘do the right thing’ when it came to taxes. Made no difference at all since we could offset it with QEE.