I received my W2 and made $3K. I also received 1098-T. My tuition was $11K and my scholarships/grants were $15K.since my income is about $7K do I file a tax return?

Forum|Forum|3 years ago
January 27, 2023
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I live with my boyfriend who pays for the apartment. I made $3K at my retail job which is taxed. I know the scholarships/grants aren’t so do I file so I owe taxes on them? Or am I ok since it is less than $12,950?

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hbl3973

Employee

haley_marie1010,

You should be OK not filing, though the reason depends upon whether you are claimed as a dependent on another person's tax return. If not, then the $12,950 figure is the correct threshold. But if you are claimed, your standard deduction reduces to $3,000 (wages) + $4,000 (taxable portion of the scholarship) + $400 = $7,400 which is, of course, more than your taxable income.

You can look at https://www.thetaxadviser.com/issues/2019/jul/kiddie-tax-unearned-income-scholarships.html for a full rundown on the impact of taxable scholarship money and how the dreaded "kiddie tax" may come into play in some instances.

One reason to file anyhow is the possible availability of an educational credit, the American Opportunity Credit (AOC) in your case. Who would claim it depends again on whether you are claimed as a dependent. If the terms of the scholarship allow you to use it for other expenses than tuition and related qualified expense as reported on the 1098-T, then it can be well worth it to "transfer" up to $4,000 of the qualified tuition number over to taxable income, in effect making up to $8,000 of the scholarship taxable instead of $4,000. That frees up $4,000 to be applied against the AOC. While some of that could be eaten up by the kiddie tax on $8,000-$1,150=$6,850, you or your parents would still come out ahead.

Hal_Al

Employee

The kiddie tax would not apply since you do not have enough income to have any taxable income.*

As to qualifying for the $1000 refundable AOC, that would depend on your age and whether you are a full time student. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working.

You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.

*It's complicated. Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400).. It is not earned income for the kiddie tax and other purposes (EIC, IRA contributions or additional child tax credit).

Hal_Al

Employee

You're OK since it is less than $12,950?

Taxable scholarship is the amount of scholarship that exceeds qualified educational expenses (QEE-tuition, fees and undergraduate course materials). So, you do have about $4000 of taxable scholarship. Since you total income is more than $4400, your boyfriend cannot claim you as a dependent.

hbl3973

Employee

Good point, Hal_Al. Just a note that I was thinking of a parent claiming the 23 year old rather than the boyfriend. While the apartment expense was covered by the boyfriend, it is quite possible other expenses, say car purchase/rental/repair/gas and the like, could add up to more than half her support. Anyhow, if neither applies, then her life is definitely easier and she should file at least to get her paycheck tax withholdings back. If the scholarship terms allowed application to nonqualified expenses, then she can pocket another $1,000 of refundable AOC credit.

Hal_Al

Employee

The fact that she doesn't live with the parents disqualifies her as their "Qualifying Child" and the $7000 (or more) income disqualifies her as their "Qualifying Relative" dependent.

On the other hand, if the boyfriend's apartment is only a temporary "away at school" address, then she could be considered still living with the parents and be their Qualifying Child.