But if you look at the worksheet on page 16 of Pub 501 for the support test for a qualifying child, there are a lot of things that count toward total support and a lot of things that count toward parent support that makes it unusual that a student provides more than half their support. An allocation for the fair rental value of the family home, a share of utility costs, family food costs, home repair costs. In addition would be medical insurance provided by the parents. Education is considered a temporary absence and while a student may only be home for breaks and summers, the parents get a full years worth of expenses allocated to the student’s support. Student income has to actually be spent on the student to count as support, any amount saved isn’t support the student provided themselves.
Is their any way I can avoid taxes if I get a large scholarship that I intend to use for later years
I also want to thank @annoyingdad His posts and help meant we knew what we were doing this week. I will say it is incredibly frustrating bc our son ended up payiing close to 10% of his total scholarship in taxes. Thank goodness we were prepared for it due to annoyingdad’s numerous helpful posts on the subject. (We would have been floored by the amt if we hadn’t been expecting it.)
One thing we hadn’t done, though, was pay quarterly taxes. I am assuming since we didn’t pay them and it was the first yr. it was ok. We did send in a first quarter payment for next yr.
I also want to thank annoyingdad for his contributions and would like to add that it kind of annoys me when people who don’t know the answers chime in anyway and respond to these tax questions. Saying that you aren’t an expert and don’t know whether your answer is true or not but giving it anyway is NOT helpful. Why answer at all if you don’t know? There are plenty of knowledgeable folks on here who will give the correct answers. My least favorite posts are the “If I’m wrong, someone will correct me”
Even worse are those who clearly don’t know and give incorrect answers.
@rosered55 We had the same question. Our son will be paid well doing research this summer and he won’t live at home at all. He will be living off campus, be paying rent during breaks, etc. But, if scholarships cannot count toward support, that $$ is what is paying his rent, food, etc, except for the much lesser amt he makes this summer. From what I understand, they have to be able to acct for over 50% of all their expenses without being able to include any scholarship $$.
We don’t even know how much of OP’s scholarship if any will actually be taxable income. (S)he has not come back and clarified if they actually are commuting to TT or not. I would think that a COA that includes rooming on campus will be different than a COA living off campus with parents. Only tuition, fees and books were mentioned and if the scholarship only covers that it should not be taxable. So are people saying that the OP will be able to receive the total $25,000 scholarship the first year, even if it would exceed COA? I thought that was not allowed?
@mommdc i think the OP should be able to be if you look at Tx Tech’s website, http://www.finaid.txstate.edu/undergraduate/cost#In-StateCoAFallSummer their estimated COA is close to $22000 not living with parents and $19,000 living with parents. If the student took more hrs, attended summer school, chose different living situation than the ones on the website, etc, the costs could probably be justified.
Ok, I thought total aid from all sources could not exceed COA. If OP can’t have any of the first year scholarship applied to subsequent years then it looks like OP would have to include in income the difference of her total scholarship ($25,000?) minus the tuition, fees, book charges for the first year.
In subsequent years the $7,500 should not exceed QEE so she should not have to include those in income for those years.
@Mom2aphysicsgeek, I did not think about extra costs for summer school and extra hours, that could well add several thousand.
The restrictions on scholarships plus financial aid exceeding COA are to do with need based aid. If scholarships are merit based rather than need based, they can exceed the COA. That is not a tax issue but to do with how need based aid is calculated.
As far as taxability, the COA is not the important thing and whether the student is commuting or not wont matter. Scholarships (& need based aid) used for room and board are taxable.
@swimcatsmom That is what I thought. But when I read some schools’ websites, they specifically stated they would reduce their merit, non-need based aid if it exceeded the COA. Since I wasn’t sure where the OP received the scholarship $$ and Texas Tech’s policies, I simply checked the COA. The scholarship is not that out of line with their website.
OP, did you contact the university to see if they will issue you a refund check? That is what happens with students at ds’s university. Once the billable fees are paid, the remaining balance is refunded via check to the home address. That means the student has the money to pay off campus rent, food, etc.
“I also want to thank annoyingdad for his contributions and would like to add that it kind of annoys me when people who don’t know the answers chime in anyway and respond to these tax questions. Saying that you aren’t an expert and don’t know whether your answer is true or not but giving it anyway is NOT helpful. Why answer at all if you don’t know? There are plenty of knowledgeable folks on here who will give the correct answers. My least favorite posts are the “If I’m wrong, someone will correct me””
Amen, sister!!
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is incredibly frustrating bc our son ended up payiing close to 10% of his total scholarship in taxes.
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@Mom2aphysicsgeek wow! was the entire school year taxed for 2014? Was this because your son received extra bonus scholarships? (well beyond tuition, fees, books)
Yes. Everything was paid in 2014 (both fall and spring semesters.) And yes, he is attending on full scholarship.
Incredibly frustrating to pay for college at a 90% discount?
I guess the glass is 10% empty instead of 90% full.
Yes. It is frustrating. I have zero problem with ds being taxed on the scholarship $$. What I do have a problem with is that it is considered unearned income and taxed at our unearned income tax rate via the kiddie tax. We were only prepared for it b/c of Annoydad’s posts. Ds’s taxes doubled due to the kiddie tax rate vs. earned income rate. Since this is the only the 2nd yr this has been the case, it is not as if this has always been the norm.
That part of the equation (parents’ tax rate) does seem frustrating.
To PG and others. I sometimes respond with an answer…because sometimes those experts need to see the thread…and aren’t regularly posting or reading. I usually @ one of the other posters so that they know there is a thread that needs their expertise.
But I will gladly stop posting this way if it’s annoying to everyone on this forum.