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1098-T and earned income for dependent child

Forum|Forum|6 years ago
February 17, 2020
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Our 19 year old daughter is going to college full time. We provide all her financial support. For 2019 she received $10,800 in grants in box 5 of 1098-T and Box 1 was $52,993. She also worked two part time jobs in 2019 and earned $5,300 (kept in savings), but she filed her W-4 as exempt and did not pay federal or state income tax. We have two questions. Does our daughter need to file a federal and state tax return and report the above items? Or can we continue to claim her as a dependent, and do we need to report the grant and earned income as reportable income on our tax returns.

Best answer by Hal_Al

Q. Does our daughter need to file a federal and state tax return and report the above items?

A. No. Her income is under the $12,200 filing requirement*. It was a smart move claiming exempt on her W-4. Now she doesn't have to file to get a refund. The scholarship is not taxable since it all went to qualified expenses.

Q. Can we continue to claim her as a dependent?

A. Yes. You could even if she did have to file.**

Q Do we need to report the grant and earned income as reportable income on our tax returns.

A. No. You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return.

*Although most states have a filing requirement close to the federal. There are a few with lower thresholds. See https://ttlc.intuit.com/community/filing-and-paying-taxes/help/do-i-need-to-file-a-state-return/00/25575

**A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
He did not provide more than 1/2 his own support. Scholarships are considered third party support and not as support provided by the student.
He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12,200), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section. TT will check that box on form 1040.

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

Hal_AlAnswer

Employee

Q. Does our daughter need to file a federal and state tax return and report the above items?

A. No. Her income is under the $12,200 filing requirement*. It was a smart move claiming exempt on her W-4. Now she doesn't have to file to get a refund. The scholarship is not taxable since it all went to qualified expenses.

Q. Can we continue to claim her as a dependent?

A. Yes. You could even if she did have to file.**

Q Do we need to report the grant and earned income as reportable income on our tax returns.

A. No. You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return.

*Although most states have a filing requirement close to the federal. There are a few with lower thresholds. See https://ttlc.intuit.com/community/filing-and-paying-taxes/help/do-i-need-to-file-a-state-return/00/25575

**A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
He did not provide more than 1/2 his own support. Scholarships are considered third party support and not as support provided by the student.
He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

Furthermore, there is a rule that says IF somebody else CAN claim him as a dependent, he is not allowed to claim himself. If he has sufficient income (usually more than $12,200), he can & should still file taxes. In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section. TT will check that box on form 1040.

Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.

M

mwsw68Author

Thank you for your reply it was very helpful.

D

DanaB27

Yes, if your daughter meets all the requirements to be your Qualifying child then you can continue to claim her as a dependent. Being in college is considered to have lived with you.

You do not need to report your daughter's earned income on your tax return. You will enter the grant when you enter the 1098-T into TurboTax. Please see Where do I enter Form 1098-T?

Your daughter doesn't need to file a tax return. Please see Do I need to file my own taxes if I'm a dependent?

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