Taxable Scholarships

[Colmatt]

Parent has two dependents in college.

1- Son has 1098-T with 50,000 tuition and 60,000 scholarships.  He used the excess for room and board. 

Does the son include this all on his return if parent doesn't claim him and declares the 10,000 as income?

He has no other income.

2- Daughter has 1098-T for senior spring with $0 as tuition and $10000 as scholarship.  $6000 was billed in 2024 for the 2025 year. 

Should the parent let her claim self and let her put on her return? Looks like $4000 will be taxable to her with excess scholarship.

She has very $20000 of wages.

Thank you very much 

[sjrcpa]

If a parent is eligible to claim a child as a dependent, the child does not get to claim themselves even if the parent chooses not to claim them as a dependent.

[TaxGuyBill]

1)  The son puts the taxable scholarships on his tax return.  But his income is below the threshold so he is not required to file.

Why is the parent not claiming him as a dependent?  Is the parent ELIGIBLE to claim the child as a dependent?  If the student had qualifying tuition, would the parent be able to qualify (such as their income) for the American Opportunity Credit?  Any chance the some of the scholarships are Pell Grants (or other scholarships that are not restricted to only tuition)?

2) Was the $6000 paid in 2024?  Or was it paid in 2025?  You may need to get the printout from the college that shows the 'financial account' of the student that itemizes all payments and expenses.

A parent can not 'let' a child to 'claim themself'.  If the child is ABLE to be claimed as a dependent, the child needs to indicate that on the tax return.  There are certain situations that if the parent chooses not to claim the child, the child may be able to get limited tax credits for education.

Is the parent ABLE to claim the child as a dependent?  If the student had qualifying tuition, would the parent be able to qualify (such as their income) for the American Opportunity Credit?  Any chance the some of the scholarships are Pell Grants (or other scholarships that are not restricted to only tuition)?

[Skylane]

Congrats to the kid for getting a full ride +….academic or sports? 

[Colmatt1]

Parent can claim both and income low enough to qualify from AOTC.  On the daughter the scholarships were applied in spring 2035 to pay tuition posted in 2924 for the spring. 

I thought if parent doesn’t claim them as dependents then they could claim college expenses, not getting refundable credit but reducing their tax burden. 

[Colmatt1]

Academic 

[Colmatt1]

Other than PELL grants what other grants can be used for room and board?

thanks as always

[sjrcpa]

"I thought if parent doesn’t claim them as dependents then they could claim college expenses, not getting refundable credit but reducing their tax burden."

That's correct but that's not how you framed your original question.

[Colmatt]

OK, Thanks for clarifying.  

[TaxGuyBill]

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@Colmatt1 wrote:

Parent can claim both and income low enough to qualify from AOTC.  

I thought if parent doesn’t claim them as dependents then they could claim college expenses, not getting refundable credit but reducing their tax burden. 

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In #1, the son has no tax, so there is no point in the son trying to claim a non-refundable credit.

The parents would potentially get the $500 dependent credit (assuming they otherwise qualify and can use the credit).  If at least $14,000 of the scholarships were non-restricted, the parents may also potentially get the $2500 American Opportunity Credit (assuming they otherwise qualify and can use the full credit).

In #2, while the daughter can benefit from some of the nonrefundable credit, the circumstances seem similar enough to #1 that it seems likely the parents will benefit more from claiming her as a dependent (especially if there at least $14,000 of non-restricted Scholarships, and the parents have enough tax to use the non-refundable credits).

Scholarships rules vary, so whether it is unrestricted (or can be used for room and board) will depend on the exact scholarship.  Unfortunately, it is often difficult to find out.