Full ride scholarship - what to do?

Forum|Forum|5 years ago
March 4, 2021
1 reply
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My son started college last year, so he only went for one semester (4 months). His scholarship covered tuition, fees, room and board entirely and some books. From what I read so far, his room and board are partially taxable as unearned income and it was about $5000. He has residency in the state I live in, but he goes to school in another state. I am confused about 50% rule. The living expense he had while he lived with us would never go over the out of state tuition and etc. which was covered by scholarship. But someone said tuition doesn't count. Can I claim him as dependent? Does he need to file his own 1040 and state tax for both states? Is it non-resident tax for the school state and resident tax for his home state?

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Hal_Al

Employee

Yes, you claim him as dependent.

"But someone said tuition doesn't count". Yes, but not exactly; it's the scholarships that are ignored in the support calculation. All the scholarships are ignored in the support calculation (even though some of it is considered income to him).

If that is his only income, he does not need to file a tax return. Even though scholarships are unearned income, taxable scholarship is treated as earned income for purposes of a dependent's standard deduction calculation (his earned income + $350, but no more than $12,400) and the $12,400 filing requirement.

He does not need to file any state returns*. Scholarship income is not considered non resident state source income. So, even if it was more than $12,400, he would only have to file in his (your) resident state.

*Although the general rule for states is that a state return is not required, if a federal return is not required, there are some exceptions. See

https://ttlc.intuit.com/questions/2903200-do-i-need-to-file-a-state-return