Scholarships, Refunds & Taxes

Discussion in 'ROTC' started by Jcc123, Oct 3, 2011.

  1. Jcc123

    Jcc123 Member

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    I did a search here and read through most previous threads regarding ROTC scholarships and taxes. I have a question that I did not find an answer to - maybe someone here has had a similar situation?

    My son's in-state public total cost (Tuition/fees + R/B) is approx $7500 per semester. For fall semester `11, he received scholarships totaling $8,700.00

    He received a refund check from his school for $1,200 for the first semester since his scholarships exceeded the cost.

    He has since (last week) signed papers for a 4-yr campus-based AROTC scholarship. The battalion indicates they will continue paying his R & B. His Hope Scholarship and 2-3 others he received are essentially guaranteed for 4 years as he should not have trouble maintaining the required GPA.

    So, with the addition of the 4-yr scholarship, he will be seeing an excess of approximately $8k-9k per year. Can he really expect to see a check from his school for $4000 - $4500 a semester on top of his stipend, or is that too much to hope for?

    I know from reading other posts that his room and board expenses will be taxable..what about the refund checks he gets? Are those taxable as well? I would assume so, but can't find the answer anywhere here.

    If anyone has insight that would be excellent.

    Thanks for the help!
     
  2. paradoxer

    paradoxer Member

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    It depends

    You need to ask the school because-

    If he has any Title IV aid (Pell grant, SEOG) this falls in a different category than donor awards (like Rotary, Target) when it comes to what is creating the refund and thus if taxes are paid. Also you will want to check with the school and see what the policy is for various pieces of aid as to see if they will still be able to be applied - this can vary greatly. Finally, ask the school what the Cost of Attendance budget is and then you can know the maximum amount he can receive from all sources.

    So there are a lot of rules that come into play and for you probably federal, state and college when it comes to applying aid.
     
  3. Jcc123

    Jcc123 Member

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    I may not have been clear, but these are all academic/merit awards. He is receiving no Federal or need-based aid.

    So, if I understand you correctly, if the school determines that the total COA is, say, $18,000, he won't receive a refund of any amount that he receives over and above $18k? But, if tuition/fees etc only add up to $16000 he would get a refund for $2000?

    As far as the "lots of rules", where can I find them? I'm kind of at a loss.

    EDIT: I just spoke with his school, and there is no cap on the amount of refund they will issue a student - if the scholarships exceed cost by $8000, they get a check for $8000. So, my question is now narrowed down to the tax implications - can I assume he will be on the hook for the Room and Board paid by ROTC and for the amount of the refund?
     
    Last edited: Oct 3, 2011
  4. paradoxer

    paradoxer Member

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    Yes, but that's a great place to be

    As long as all the merit money is from sources outside of the college, state and federal rules then you can have the (taxable) refund.

    Most rules are not easily findable, especially in this situation because it's a pretty rare feat, congratulations!
     
  5. goaliedad

    goaliedad Parent

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    Above advice is correct. You will receive a check for all moneys in excess of moneys owed the university (tuition, fees, r&b if living in dorms). You will also receive a tax form (similiar to a bank interest statement) by the end of January telling you exactly how much of the money he received as FA is considered taxable income and is being reported as such to the IRS. That is the figure he needs to be looking at. Stipends and book allowance will not be reflected in these amounts as they are not taxable.
     
  6. MNDad2015

    MNDad2015 Member

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    One thing to check into would be minimum income requirements where you actually have to pay taxes and whether that applies if you are/are not claiming him as a dependent. I know that the threshold for Federal is well above $8,000, and you can probably figure it out for your state if you have the tax booklet from this year. Last but not least, it might be pretty inexpensive but invaluable to get advice from a tax accoutant if you don't already have one.
     
  7. Jcc123

    Jcc123 Member

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    Paradoxer - since he got a refund check this semester before he was awarded the 4 yr scholarship, can we safely assume R/B paid by the ROTC dept. falls under "sources outside the college"?

    MNdad - luckily for us- we live in one of the few remaining states with no state income tax - one less thing to worry about!

    He has never actually had a job, so I'm completely clueless regarding how his taxable status impacts my ability to claim him as a dependent, etc. I do believe this is the year I stop doing my own taxes!

    And, while I feel I'm also reaping some benefits here, he's the one who deserves the congrats. He showed up to campus and took care of business with regards to PT, etc. He's just fortunate his battalion was able to secure a 4-yr for him - I understand they're very difficult to come by this year.

    Thanks, everyone! And any additional insights are welcomed.
     
  8. paradoxer

    paradoxer Member

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    Assumptions can kill you.....

    That's what we told each other when we were first married, and it is just as true in financial aid. It's a reasonable assumption but let me tell you that I've worked in financial aid for 10 years and I still contacted the universities high on my DS's list two years before I knew he would potentially enroll because every university has such unique policies. But based on what you are telling me every semester he should essentially have his Costs - his aid = his refund, since the Cost of Attendance budget doesn't come into play with his type of merit aid.
    Nota Bene: anyone else reading this discussion do NOT assume this applies to you.
     
  9. singaporemom

    singaporemom Member

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    This is how my son's tax/scholarship situation worked one year:

    ROTC scholarship for tuition, fees = 25,000
    University Scholarship Room and Board = 8,000
    Misc ROTC scholarship for Languages = 1,000


    He receives a 1098(?) tax form form the university stating:

    Tuition and fees = 25,000
    Total Scholarships = 34,000

    When we plug this into the 1040EZ form, son is responsible for 9,000 in income before deductions.

    And, at the end of each semester, the university refunds directly to his checking account whatever portion of scholarships is not being used at the university. DS lives off campus so they refunded R&B scholarship so he can put it towards off campus housing. The years that he received extra scholarship money from ROTC for languages, that was refunded also.

    I would suggest to have son put the majority of extra funds aside so taxes can be paid and when he moves off campus, there is extra for that, and possible for travel to and from home.. At the end of his college career he will have a nice nest egg.:smile:
     
  10. kinnem

    kinnem Moderator

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    I wish I had to manage this problem! Talk about making college pay! :biggrin:

    I checked some online IRS stuff and here's the limits for whether your son would have to file (this year anyway):

    Additional requirements on whether yuor son has to file a return (depends on the type of income) can be found here: http://www.unclefed.com/TaxHelpArchives/1997/p929.pdf

    Here's the relevant test as to whether you can claim him as a dependent:

    I believe if you declare your son as a dependent (because he doesn't have to file under other criteria) then you would still have to report his income on YOUR return. I'm sure there are limits here as well but no doubt you will exceed them.

    Given tne amounts involved I expect it would be best for your son to file his own return and perhaps you don't even claim him as a dependant.

    Keep in mind I'm noit a tax accountant... or even an accountant... but I do my own taxes! :biggrin:
     
  11. EDelahanty

    EDelahanty Member

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    Regarding the school's 1098-T form (Tuition Statement), make sure you understand how the figures were arrived at and verify that they are correct. In particular Box #5 (Scholarships or grants).

    For whatever reason the financial aid office at FG Delahanty's school did not remove from its accounting a scholarship award which was forfeited when the ROTC scholarship was granted.
     
  12. singaporemom

    singaporemom Member

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    Yes, always good to double check the numbers. This year we were very surprised to find out that the school added in Spring 2011 room and board scholarship into the 2010 numbers. They decided to include this amount on Dec 31, 2010 even though he would not receive the scholarship until January. So DS had to claim income on 12,000, instead of 8,000. Not a nice surprise:thumbdown:
     
  13. paradoxer

    paradoxer Member

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    1098T Numbers

    Typically the school will follow the billing schedule and not the academic calendar when reporting these numbers so this is very good advice.
     
  14. Ohio2015Parent

    Ohio2015Parent Member

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    Great information as usual...was just starting to put the tax situation on my list of things to start researching. DS is receiving large refunds also due to guard and merit tuition payment, an unneeded Stafford loan(he'll use some of there proceeds to pay off ASAP)Room grant and income from a part-time summer job and now Guard drill pay too will make his tax situation very different. Will run the taxes thru a couple of different scenarios to see what works best. Does anyone know if you don't claim them for one year, but are still legally able to(full-time student status)can you claim them the following year(ie. give up dependent one year and reclaim the following year if their financial circumstances change)? Never know what will happen in 2012, could lose a merit scholarship or not make as much money one year to the next.
     
  15. mariner116

    mariner116 Member

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    The only thing I can add to this is that the school may not send you a 1098T. I kept waiting around for it to arrive only to finally determine that my daughter needed to download it from her school's portal.

    I can also add that TurboTax handled her taxes easily with a combination of some income sources and her taxable aid.
     
  16. FinFan

    FinFan Member

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    kinnem,

    Your son would file his OWN federal income tax return.

    You NEVER file a return with anyone's earned income on your own return.

    He CANNOT claim himself if you determine if he is still a dependent and you claim him. But he still gets a portion of the itemized deduction as being a single person on his own return.

    I hope this helps.

    PS. I am not shouting at you with the caps--just trying to make sure there is no confusion.:)
     
  17. goaliedad

    goaliedad Parent

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    A couple of things here:

    1) Loans are not taxable financial aid.
    2) If the question is to whether it is wiser to have him file and take his own deduction (not taking him as a deduction on your return), the math always shows that the filer with the higher marginal tax bracket will get the most benefit for having that personal exemption. That 99% of the time is having the student personal exemption on with the parent's return. Keep him on your return until the year he graduates where if he pulls a paycheck for 1/2 the year, you won't be allowed to take him as a deduction.
     
  18. singaporemom

    singaporemom Member

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    If you pay more than 50% of students support, he is still a dependent. Unfortunately when student gets full tuition and room and board, it's hard to justify an amount equal or greater to that number.
     
  19. goaliedad

    goaliedad Parent

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    Not as hard as you might think.

    Remember, you provide his/her permanent address, the cost of operating can be divided by the number of people on the return. The cost of health insurance, transportation to and from campus and the use of any motor vehicle. It adds up pretty fast.

    I've yet to find anyone who has been denied the tax deduction for a child on a full scholarship anywhere.
     
  20. kinnem

    kinnem Moderator

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    I think the 50% rule is to determine which "parent" can clain the child as a dependant. But then I'm not a tax expert.
     

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