Do I have to file taxes? I am an unemployed dependent with excess scholarship/grant funds

Forum|Forum|4 years ago
January 13, 2022
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Hello! I am a first year college student with grants and scholarships that help cover the costs of attending school. My dad files me as a dependent but I dont know what im supposed to do with my leftover grant funds. I haven't received or heard anything at all about my 1098-T, so that also makes it all the more tricky. I have received ~$6,420 in total scholarships and grants for my 2021 semester, and was refunded ~$2,400 of that because it exceeded my college expenses. I still have most of these funds saved up, and I dont work or have a job, so what should I do?

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Hal_Al

Employee

Q. Do I have to file taxes?

A. No. You would only need to file a tax return if your excess (taxable) scholarship (plus any other income) was more than $12,550 (2021filing threshold).

You and your Dad should be aware that there is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.

If your Dad uses the loophole, it is advisable (but not mandatory) that you file a tax return even if the taxable amount is less than $12,550; just to document that you reported the income.