Kiddie Tax on Scholarship

Forum|Forum|4 years ago
February 5, 2022
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I’m trying to help my daughter file her taxes for the first time. She has no earned income. She only has an unearned taxable scholarship to claim. She should have just over $1500 worth of scholarship to pay taxes on after all of her non taxable expenses are factored in. Her school does not send out W-2’s for excess scholarship. As TurboTax instructs, we have put all the information into TurboTax via the 1098-T and answered all the questions but it is not calculating any taxes. It just keeps calculating her taxes and refunds as $0. When I select review it says that the 8615 form is not ready for filing yet. Is that the issue keeping it from calculating?

Best answer by Hal_Al

Yes. She had $2776 total in unearned taxable scholarship and then she put in the $1208 she paid for books and materials she had to have for classes leaving $1568 she should be taxed on. She has no earned income. I feel like TurboTax has an error because when we tried removing the $1208 for books which would raise it over the $2200 threshold it still was calculating $0 for taxes owed. Something just isn’t adding up.

Taxable scholarships are a "hybrid" income category. They are unearned income for most purposes, including the "kiddie tax". But taxable scholarships are treated as earned income for purposes of a student-dependent's standard deduction. So since her income is less than $12,550, it is wiped out by her standard deduction and there is no tax. TurboTax is doing it correctly.

Her standard deduction is $1568 + 350 = $1918 and will show on line 12a of form 1040. The standard deduction for a dependent is the greater of $1100 or their earned income + $350 (but not more than $12,550). For the purpose of that calculation, taxable scholarship is treated as earned income.

ColeenD3

She has to file Form 8615. She has unearned income over the allowed amount.

For tax year 2021, the Kiddie Tax applies if your child has unearned income (usually from investments) exceeding $2,200.

Form 8615 must be filed for any child who meets all of the following conditions.

The child had more than $2,200 of unearned income.
The child is required to file a tax return.
The child either:

17 or younger at the end of 2021
18 at the end of 2021, but only if their earned income (excluding scholarships in the case of a full-time student) didn’t exceed half of their support costs in 2021.
Was a full-time student at least age 19 and under age 24 at the end of 2021 and didn’t have earned income that was more than half of the child's support.
(Unearned income and support are defined below.

At least one of the child's parents was alive at the end of 2021.
The child doesn’t file a joint return for 2021.

For these rules, the term “child” includes a legally adopted child and a stepchild. These rules apply whether or not the child is a dependent. These rules don’t apply if neither of the child’s parents was living at the end of the year

Please see this answer by macuser22.

Unearned income defined.

Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, taxable scholarship and fellowship grants not reported on Form W-2, the taxable part of social security and pension payments, and certain distributions from trusts.

Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages).

CONKS3Author

I understand that she needs to file this form. What I’m trying to understand is why Turbotax is not calculating any taxes owed after I enter all of the 1098-T information showing the excess scholarship amount. She should owe taxes via the 8615 but it still keeps saying $0 owed.