There are significant changes to the tax treatment, due to the Tax Cut and Jobs Act
Next year the standard deduction for dependents will be the greater of $1050 or earned income plus $350, up to a maximum of $12,000. So for a student with earned income, all but $350 of that scholarship will be taxable. The Kiddie tax is no longer based on the parents’ income, but on the tax table for trusts and estates (found here: https://www.■■■■■■■■■■■■■■■■■/documents/4404038-T-E-2018-CONF.html )
The first $350 falls under the standard deduction (assuming the student has $700 or more in wages from a summer job)
The first $2100 above that is taxed at 10% “single” rate, before moving to the trust/estate table ($210)
The next $2550 is taxed at 10% ($255)
(so the first $5000 will result in $465 in taxes)
Above that it jumps to a 24% tax rate (for the next $6,600)
And then a whopping 35% (next $3,350)
Anything above that is 37%
… and everybody thought the old kiddie tax sucked! Those Academic Elite scholarships come with a significant tax bill ($1,305 just for the 8,500 stipend - not including the first year of housing). The good news is they won’t owe federal income tax on their wages up to $11,350
At the 24% rate, it’s only worth shifting the first $2000 toward tax credits (The first $2000 produces 100% credit, the second $2000 is a 25% credit.