Full ride scholarship, tax, and insurance

<p>I think I know the answer, but want some other parents to confirm... This kid who receives $55K scholarship. Qualified tuition/fees are $41K. So $14K will be taxed as income since it's used for room and board. I think she should claim herself independent for tax purposes, because she would pay at much a lower rate than her parents' rate. Regardless of the independent status, she will still qualify to be under her parent's health insurance coverage, I suppose. Am I correct on two counts here?</p>

<p>She could. But then you lose her as an exemption and she can’t claim the tax credit for tuition because she COULD be declared as a dependent. It’s really a matter of which way is more advantageous in terms of taxes between the two of you. I believe books and needed supplies are also exempt from taxes which is a couple grand more. Do it both ways and see where you come out ahead.</p>

<p>The student can be claimed as a dependent on her parents’ 1040 and still file the $14,000 of taxable scholarship income on her own 1040 (or 1040A or whatever form she files) where she would indicate she is a dependent being claimed on another’s 1040. The scholarship is not claimed on the parents’ 1040. Someone else more knowledgeable than me will have to answer your health insurance question.</p>

<p>she can’t claim the tax credit for tuition</p>

<p>Can you claim the tax credit for tuition if you’re getting all costs paid for by grants/scholarships?</p>

<p>mom2, the way I read IRS 970, no. I hope someone to tell me I am wrong :)</p>

<p>I agree, the person taking the deduction has to actually pay the expense. If scholarship funds cover all costs, then there’s no deduction to be taken.</p>

<p>But I’m shocked to learn that a full ride scholarship results in taxes to be paid! This country/process/higher education is insane. There must be some affordable colleges elsewhere… I wonder how things are going in Croatia?</p>

<p>Cpt has good advice to try it both ways, but either way I don’t think you will get any tax credits, books and supplies won’t get you from 41 to 55, but it will help a little.My guess is for parent to keep student as dependent but have student file own taxes for excess scholarship money. It depends a lot on the parent’s tax bracket, and there are (or used to be) rules for dependent children unearned income limits before they are taxed at parent rate anyway.
Most likely insurance has nothing to do with it, check with your provider but most likely student can stay on parent’s insurance.
I would be jumping for joy if my D was paying taxes on her full ride. The increasing cost of a college education is a serious problem, but the tax on full ride scholarships isn’t anything like the real problem.</p>

<p>Yes, those very few who get full ride have to pay taxes on the room,board and other expenses. Why should they get a tax exemption on money given to them when the guy busting his chops on a job does not, for his living expenses. The personal exemption is the allowance given to all before any taxes have to be paid. The tax credit that Dad gets will probably pay for the taxes the student will owe.</p>

<p>jtmoney & cptofthehouse - I agree, paying taxes on a full ride is the best possible circumstance.</p>

<p>I am surprised. I put a lot of research and time into this process and am just now learning that the scholarship benefit above tuition and fees is taxable. What other rude surprises hide in the minutiae of details to be learned? It’s stressing and distressing. What if the child and/or family with the full scholarship doesn’t have the money to pay the taxes?!</p>

<p>Anyway, this is a side issue, and I was just verbalizing a little freak-out this morning.</p>

<p>I believe when awarded the scholarship there is a warning that the amounts may be reportable to the IRS and that certain portions may be taxable. That is standard language I’ve seen on many awards. But it is so rare that someone gets so much that there is a surplus, that not a whole lot is made of it. Perhaps it should be in bigger letters and in red. </p>

<p>It can be an important issue because someone who truly is flat out broke, hit up even with under a thousand in tax liability, could have a problem coming up with the money. That they should have known, and put some aside, is not helpful right now with the tax bill due.</p>

<p>Lizzie, yes, room and board are taxable. I don’t think transportation is an unqualified expense so you can’t claim it as part of the scholarship. Tuition, required fees and text books are tax exempted. CPT is correct about tax warnings. They appear in all award letters. I agree that to pay taxes on $14K is much easier than to pay $14K regardless of the tax rates. A free top notch education is a blessing.</p>

<p>DD has a full COA scholarship. Last year the taxable amount was approx 12k. She filed her own taxes and took the standard $5800 deduction, meaning she only had to pay taxes on the balance. For state and federal together she paid approx $700. I claimed her as a dependent on my taxes, however I could not take the tuition tax credit since I’m not paying her tuition. And yes she will stay on my health insurance policy till she turns 26.</p>

<p>Just to clarify, I paid the $700 for her and its was well worth it lol.</p>

<p>The tax bill should be little enough that a summer job and part-time job during the school year could easily cover it if the parents can’t afford to.</p>

<p>“the tax credit that dad gets…”</p>

<p>cpt…is there a tax credit when the family isn’t paying any tuition or any costs???</p>