Does my 20 yo daughter (dependent & full time student) have to file a return for $4000 scholarship if this is her only income?

Forum|Forum|4 years ago
May 10, 2021
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My 20 year old daughter is a dependent and a full time college student. Her only income is $4,000 reported on line 5 of form 1098-T. IRS publication 501 table 2 states that scholarships are earned income and based on the guidelines, she does not have to file a return.

I am confused since the Turbo Tax income section "Less Common Income" asks about Childs Income and the More Info button states that scholarships are unearned income with the guidelines showing that she would have to file a tax return (since her $4k scholarship is more than the $1,100 limit).

To give more information, the 1098-T has over $9,000 in box 1. We also have a 1099-Q from a 529 plan distribution with $4,000 reported in box 1. So, the scholarship and the distribution together are still less than the qualified education expenses in box 1 of the 1098-T. In previous years, there was no scholarship and I had input the 1098-T on our (parents) tax return and used the AOTC. We do claim her as a dependent. Does she have to file a return? And are we still able to use the 1098-T on our return and claim this education credit?

DavidD66

As long as the qualified educational expenses are more than the scholarship, the scholarship is not taxable. You can report the 1098-T on your tax return, and you daughter does not need to file a tax return.

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T4TaxAuthor

Thank you! That's what I was hoping. Does this mean that I need to answer "no" to the TurboTax question asking if I have any Child's Income in the Less Common Income section?

Hal_Al

Employee

Yes, answer no to the question about child's income.

Even if she had enough scholarship to report*, it would not go on your return. She would have to file her own return.

*You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return. If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2020 if he had any of the following:

Total income (wages, salaries, taxable scholarship etc.) of more than $12,400 (2020).
Unearned income (interest, dividends, capital gains, unemployment) of more than $1100.
Unearned income over $350 and gross income of more than $1100
Household employee income (e.g. baby sitting, lawn mowing) over $2100 ($12,400 if under age 18)
Other self employment income over $432, including money on a form 1099-NEC

If his only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on your return, using form 8814. Enter at Less common income / Child's income.