grmy2h Posted January 30, 2011 Report Share Posted January 30, 2011 I am stumped here... Qualified Education Expense is 2,916.79 Pell Grant 1,650.00 Parents paid remaining 1,366.79 After all expenses were paid the state awarded the student an additional 1,500.00. Since all expenses were already paid, the college refunded the student the $1,500.00. The student then spent the $1,500.00 on non-education items (new stereo, video games, etc.) without the parents knowledge. The $1,500.00 would now be taxable since it was not spent on Qualified Education Expenses, but, who has to claim it? The parents do not want to claim it, since they knew nothing of it. They want it reported on the sons return. It would seem to me that since they are claiming the education credits, they would be the ones to claim it, however, they disagree and want me to show them something that says they have to claim it. Any advice? Quote Link to comment Share on other sites More sharing options...
Lion EA Posted January 30, 2011 Report Share Posted January 30, 2011 Sounds like the student got another $1500 scholarship money that will be taxable to him. I think you have to force it to line 7. Haven't had one of those. (If the kid hadn't PO'd his parents, there would be other ways to calculate the taxable part.) Quote Link to comment Share on other sites More sharing options...
Pacun Posted January 30, 2011 Report Share Posted January 30, 2011 I am stumped here... Qualified Education Expense is 2,916.79 Pell Grant 1,650.00 Parents paid remaining 1,366.79 After all expenses were paid the state awarded the student an additional 1,500.00. Since all expenses were already paid, the college refunded the student the $1,500.00. The student then spent the $1,500.00 on non-education items (new stereo, video games, etc.) without the parents knowledge. The $1,500.00 would now be taxable since it was not spent on Qualified Education Expenses, but, who has to claim it? The parents do not want to claim it, since they knew nothing of it. They want it reported on the sons return. It would seem to me that since they are claiming the education credits, they would be the ones to claim it, however, they disagree and want me to show them something that says they have to claim it. Any advice? It seems straight forward to me. Child reports $1500 as income. If parents qualify to claim him as a dependent, they will claim him and use $1,367 to calculate the education credit. If parents got those $1500, then it would be another story. Parents would have $133 extra salary AND no education credit. Quote Link to comment Share on other sites More sharing options...
grmy2h Posted January 30, 2011 Author Report Share Posted January 30, 2011 Yes, child got money, but I guess I'm wondering is the IRS going to see it that way? I would think that if the parents take the education credit then they would be the ones to report the extra scholorship. However, I can't find that in writing anywhere. (that the taxable scholorship and credits have to be on same return) I just don't want this to bite me later.... LOL Quote Link to comment Share on other sites More sharing options...
Tax Prep by Deb Posted January 30, 2011 Report Share Posted January 30, 2011 Just had similar situation come in today. In this case the student was given a grant that way exceeded the educational costs. It will completely cancel out any credit and then there will be about 4000.00 left over. I can't site a source but in my mind this is the logic. The student will claim the income, and because it wipes out the credit, the parents claim nothing except the exemption for the student. Even if the situation was exactly the same as yours I would do as suggested. Student claims the income, parents claim the dependent and any educational credit. The income follows the social security number on the document, the credit follows whoever claims the dependent. Just my two cents worth! Deb! Quote Link to comment Share on other sites More sharing options...
Lion EA Posted January 30, 2011 Report Share Posted January 30, 2011 The parents are not in college, their child is. The child received the scholarship. If greater than his qualified expenses, the student has taxable income. (Or, in this case, if spent on non-qualified expenses, the student has income.) This also is used as a planning tool, since the student often has a lower tax rate. It works if the funds are allowed to be used for other than tuition, etc. (some scholarships are not allowed, not refunded to the student). The student uses his scholarship for non-qualified expenses, taking the income on his tax return at his lower rate. The parents pay the tuition and take the education credit/deduction against their higher income/rate. Quote Link to comment Share on other sites More sharing options...
Pacun Posted January 30, 2011 Report Share Posted January 30, 2011 Just had similar situation come in today. In this case the student was given a grant that way exceeded the educational costs. It will completely cancel out any credit and then there will be about 4000.00 left over. I can't site a source but in my mind this is the logic. The student will claim the income, and because it wipes out the credit, the parents claim nothing except the exemption for the student. Even if the situation was exactly the same as yours I would do as suggested. Student claims the income, parents claim the dependent and any educational credit. The income follows the social security number on the document, the credit follows whoever claims the dependent. Just my two cents worth! Deb! This is my logic. Let's say that parents paid $2,000 for child's education. Later, the parents got scholarship for $5,000 and used that money for their child's dorm rent. The parents MUST report income for $5K. If they qualify to claim the child's exemption, they will qualify for education credit. Do you agree? It is the same situation. The child will pay taxes on the $1,500 and this has nothing to do with the fact that the child might not pay any taxes on this money. Quote Link to comment Share on other sites More sharing options...
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