Scholarships, Refunds & Taxes

[kinnem]

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.

As I've said in other posts I'm not a tax expert; but people's tax situations change all the time. I'm quite confident you could claim them as a dependent in the year following one where you didn't claim them.

 

[Ohio2015Parent]

Thanks everyone who replied. I'll probably keep him as a dependent - regardless, but, yes, even when you keep an income earning, tax paying dependent, they still may be required to file their own return(older DD always files, but I keep her as a dependent). I've typically figured both ways and then shown DD the difference. Yes, the car, insurance, health insurance and permenant address has always been enough to keep her as a dependent(almost age 21 and has received significant merit scholarship money, just no refunds). Hey, I look at it, FAFSA says they are a dependent student so I'm just keeping it simple

Absolutely agree with the forms often being online instead of the university mailing them to you. Often it is quicker to get the figures on line even if they eventually do mail one(I like to do the estimated FAFSA at midnight on New Years Eve, yes, life is exciting in Ohioland)

 

[Just_A_Mom]

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.

This is true. Those with dependency questions should refer to IRS publication 501. There are 5 conditions that all must be met to claim someone as a dependent:
Relationship
Age
Residency
Support
Joint Return

The 'support' condition trips folks up lots of time. Basically, you must have provided for over 50% of your childs *support*. Tuition, room and board away at school all count as *support*. For instance, if they are getting $40,000/year in scholarships, grants etc; then you have to show you are providing $40,001 in additional support through out the year. Perhaps buying your 20 year old a beemer would count.

This is HIGHLY individual and will vary from family to family.

One other thing - be wary of 1098T's provided by the college. After 14 kid college years and looking at 14 1098T's from 5 different colleges; I can tell you they are often not correct.
Keep your own records and spreadsheets. Again this is going to vary by circumstance. To avoid being taxed on scholarships apply them to tuition first. However in order to claim the American Opportunity Credit (if you qualify by income) you need to apply loans or cash to the tuition. You can't take the credit, which is for tuition, books only (not room and board) if the scholarship covers the tuition.
Here's where it gets tricky - if the scholarship is designation to tuition then you can't claim the AEO for those costs. But if you get a grant from the college that is applied to the bill - you can target that toward room and board and any loans/cash to the tuition in your own record keeping.

Each year I keep a spreadsheet with the college costs and how they are paid - scholarship/grant, loans, cash. This trumps the 1098T.

Finally (just one more point!) - in MOST cases the college will not award you more that the Cost of Attendance. The idea of 'making money' off college does not really work if you are receiving financial aid.

 

[Pima]

Each year I keep a spreadsheet with the college costs and how they are paid - scholarship/grant, loans, cash. This trumps the 1098T.

So true, keep everything because if you are audited this will be your first line of defense.

Finally (just one more point!) - in MOST cases the college will not award you more that the Cost of Attendance. The idea of 'making money' off college does not really work if you are receiving financial aid

Actually, for our DD's college because between her merit and IS tuition, she actually will get a check refunded by the college for her to use since the school sees it as a credit. They don't just accept X dollars owed, if it is 5500 and they owe 5217. They send them 283. The same is true for our niece and our DS's GF, all 3 attend colleges in 3 different states, the commonality is it is the FAFSA loan.

I know you said MOST, and I am not trying to disagree or parse your post, but for 1st timer parents they may not know this does exist... I believe they release it in Jan. after the drop/add date. I actually would prefer that they would only accept the difference and not hand the money back...it becomes a pain, because now you have to go, deposit the money and re-send it back to be credited to your account to reduce the loan, which than creates another tax issue since you will get a statement from them. Most kids don't realize some loans actually accrue interest on the principal while they are in school, so that 5500 may be 6000 when they graduate and start paying it off.

Finally, many cadets do not understand that although the stipend is not taxable and money they get from TDY training is. In other words if they attend LDAC or SFT or summer cruises, that money is a per diem, not an allowance. Be prepared for them to report that income.

Ohio, that will be especially important to your DS since he went to training this summer, so he will get a W-2 from DFAS for that pay. Military does not send them out until the end of January, however, he should have an LES so he can go off of that.

 

[Just_A_Mom]

she actually will get a check refunded by the college for her to use since the school sees it as a credit. They don't just accept X dollars owed, if it is 5500 and they owe 5217. They send them 283. The same is true for our niece and our DS's GF, all 3 attend colleges in 3 different states, the commonality is it is the FAFSA loan.

Yes, but this is for those expenses above and beyond room and board.
The Cost of Attendance > tuition + room and board.

Each college will calculate the COA - factors include dorm, off campus or living with a parent. Some colleges even calculate transportation to and from home for breaks.
It's a rather mysterious number and does allow for financial aid refunds - but it's not infinite.

 

[Pima]

I agree it is not infinite, my point is that refunds do occur and the difference is from the loan and the amount owed.

I should also say for the 3 I mentioned, they all live off campus, but on campus (contracted housing via the college, but not part of the bill), which is probably the twist, they all live in apts. or houses due to the fact that the college can only guarantee housing for freshman.

I actually wonder if that is the devil in the details. It maybe the college states that there is no housing for them on campus, and since they live too far away to commute, they expect that difference to be placed towards housing which is not under the school's control.

What is interesting is that why 2 of them get their FAFSA deposited directly into their checking account, whereas ours goes to the school, and they disperse the funds. They are all dependents, and the other 2 swear this is FAFSA and not a personal loan. I wonder if the disbursement is done by region or state. I.E. North, South, West, etc. Or maybe even school.

 

[Ohio2015Parent]

I would suggest first time parents contact financial aid at their child's school and ask about refund policies(some information is typically online, but for detailed information talking to someone is the only answer, remember that your child must have given permission for you to access their aid/busar account by phone.)

Here is the downside of the refund issue, the source of the income/refund could very well impact the aid offered the following year(ie. DS has a Subsidized Stafford as part of his package, I do NOT expect his school will offer that to him for the 2012-2013 aid year). Once we see the new aid offer he will probably not accept Staffords next year(silly to be refunded money while borrowing, even at the low interest rate).

The first and second years seem the most challenging to coordinate aid vs income vs costs. DS's school has 2 very knowledgable people(one in cadre, HR person and finaid has a dedicated person for all ROTC/Guard/GI bill students) Ask if your school has someone in finaid like this, makes it so much easier

 

[paradoxer]

Help on this one

I agree it is not infinite, my point is that refunds do occur and the difference is from the loan and the amount owed.

What is interesting is that why 2 of them get their FAFSA deposited directly into their checking account, whereas ours goes to the school, and they disperse the funds. They are all dependents, and the other 2 swear this is FAFSA and not a personal loan. I wonder if the disbursement is done by region or state. I.E. North, South, West, etc. Or maybe even school.

Could you explain the above paragraph a bit more and I might be able to give some insight? FAFSA doesn't deposit money into anyone's account, loans require an acceptance and a promissory note to pay into the student's account, it doesn't happen without student intervention. I'm wondering what disbursement you are referring to when you mention geography.

 

[NewCollegeParent]

Good News, we all have time to contact an accountant. However, this is what I've been advised.

** Georgia Hope (Merit) scholarship is not taxed but can only be used for tuition
** Army Room and board is taxable
** Books and Stipends not taxable (Need reciepts for books and school supplies including computer)

Now, I will claim my son as a dependent which hurts him but helps me. Depending on your view you can reimburse them if you want. Here is my reaoning

Some TAX facts

Federal Dependent Exemption is $3650
Federal Standard deduction for 2011 is $5800
Single tax rate 10% 0-$8500 of TAXABLE income (After deductions)
Single tax rate 15% for TAXABLE income between $8501-$34,500
Married tax rate of 25% for Taxable income 69,000- 139,350

Let us say son gets 1$0,000 for room and board from ARMY
He takes the standard deduction of $5800 and owes taxes on the remaining $4200.

$4200 is his TAXABLE income

Now since he does not make alot of other money, his tax rate is 10% therefore he will owe a total of $420.00 to the federal IRS.

I take the depedent deduction which lowers my taxable income by $3650. Now I am blessed to have married taxable income greater than 69,000 (NOte after deductions). This is taxed at 25%. So it works out that If I claim him I DO NOT PAY $912.50 BUT he DOES pay $365. A tax savings to the family of $547.50

As you see, you could pay his taxes with this savings and still have some left over.

Of course if your married taxable income is less than $69,000 then the differnce is much less (5%or $182.5) Also state taxes will likely cause a greater overal difference.

I don't know about you, but my son has not totally left our payroll (Insurance, Car, Phone, vacation uncovered college expences) so I personally feel I should claim him.

Hope this did not confuse the issue

 

[EDelahanty]

Good example for the way it works on the federal level. Thanks.

 

[Jcc123]

I would suggest first time parents contact financial aid at their child's school and ask about refund policies(some information is typically online, but for detailed information talking to someone is the only answer, remember that your child must have given permission for you to access their aid/bursar's account by phone.)

OP here....I did, in fact, call the Bursar's office at my son's school and pose a hypothetical "if his scholarships total $8000 more than Tuition / R&B, will he receive a refund check for $8000 and was told absolutely yes. He did get a refund already for fall semester.

He is receiving no need-based aid and has taken out no loans - just has academic/merit scholarships totaling $26000 for a tuition/R&B school that costs $15000. His school was paid for with scholarships before he was awarded the ROTC 4-yr. In a way, I feel guilty about the excess funds. On the other hand, he earned everything he has received. He will find a way to pay it forward.

Even after reading all of these helpful posts, I still am not clear on the tax implications and feel paying someone to do our taxes this year is probably the way to go.

Thanks again everyone.....this is a great, informative community.

 

[Pima]

Yes, hire a tax accountant because as I have read it, you will have 11K and because he is 18, even as your dependent, legally he is liable for that as income.

I would bet my beloved Myrtle (my avatar picture) that all of this is in his name, not yours. You need them (tax acct) to do it.

Congrats to your child, and no need to feel a need to defend he deserved/earned it. He did!

SHINE ON!

 

[Packer]

Jcc123: Congratulations! No need to feel guilty, he earned it fairly. Your "problem" is a great problem to have. Good luck!

 

[Ohio2015Parent]

OP here....I did, in fact, call the Bursar's office at my son's school and pose a hypothetical "if his scholarships total $8000 more than Tuition / R&B, will he receive a refund check for $8000 and was told absolutely yes. He did get a refund already for fall semester.

He is receiving no need-based aid and has taken out no loans - just has academic/merit scholarships totaling $26000 for a tuition/R&B school that costs $15000. His school was paid for with scholarships before he was awarded the ROTC 4-yr. In a way, I feel guilty about the excess funds. On the other hand, he earned everything he has received. He will find a way to pay it forward.

Even after reading all of these helpful posts, I still am not clear on the tax implications and feel paying someone to do our taxes this year is probably the way to go.

Thanks again everyone.....this is a great, informative community.

Glad you called them and had an idea what to expect, we knew DS would be getting refunds, but only after he'd accepted a stafford loan(will repay immediately!!)so the refund is bigger than it should have been. Do not feel guilty, I've told DS not to feel guilty either, most of his award is academic merit and he's the one who earned those grades and test scores The ROTC room grant and National Guard tuition assistance are a little different to keep track of taxes, but the HR person in the cadre told all of us parents at orientation he would try to help us out. It should be a fun tax season here in Ohioland

You may start looking at irs.gov for the links pertaining to education and/or military pay-personnel. I haven't started reading yet, but it may give you some ideas to ask your tax person about.