@fidoprincess The proposed amendment you linked would change the tax rate for taxable scholarship/grant funds from unearned income (subject to the new trusts and estates rate) to earned income (subject to the student’s tax rate). This will definitely decrease the amount of tax owed if the dependent student doesn’t have very much earned income AND does not have any unearned income (interest, short-term capital gains, etc.)
Let’s say the student gets $10k in grants that exceed QEE. And let’s say that student earned $6k from part-time and summer jobs. The student had no income from interest, dividends, or short-term cap gains. Total earned income would be $16k. Minus this student’s standard deduction of $6350 (earned income plus $350) = $9,650. This would be the same under the current language and the new language (because currently scholarships are treated as EARNED income for the purpose of calculating the standard deduction).
The difference will come when calculating the taxes owed on the $9,650. Under the amendment, for a single person the tax owed would be $967.50. Under the current rules, in which dependents with unearned income are taxed at the trust and estates modified rates, the tax owed would be $1,714.00. Big difference.