Turbotax error with taxable scholarship income

Forum|Forum|6 years ago
February 23, 2020
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For three years in a row, I've encountered a tax flaw in Turbo Tax when dealing with education scholarships. If a student allocates scholarship money to pay for room and board, IRS Form 8863 instructions clearly say to report that amount with wages and that it is taxed as earned income. However, Turbo Tax treats it as unearned income (dividend/interest) and incorrectly calculates the dependent student's tax for that scholarship based on parent's earnings, triggering Form 8814. I've searched the website to see if there is a place to report errors but can find none.

NCPERSON1

I don't think so.... I just tested your 'bug' in TT (desktop) and could not replicate this condition.

I set up a 18 year old student tax return who is a dependent on his parents return, and noted on the 1098-T that Box 5 had $5,000 (with zero in Box 1)

TT came back and posted $5,000 under 'wages' on form 1040, took a standard deduction of $5350 and said the student owed no taxes. That is all working as I would have expected it.

clealram7733

I have a similar situation where my daughter has $7,520 in taxable income from fellowship grants allowed to pay for room and board expenses and she doesn't owe any taxes. Does she still need to file a tax return since she doesn't have any other income?

ThomasM125

The taxable scholarship income will show up as wages if entered properly in the program.

Your daughter probably does not have to file a tax return, but you can use this online worksheet from the IRS website to insure that she doesn't have to file a federal tax return:

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

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