AROTC scholarship and taxes

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Nov 12, 2015
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My son has been awarded a 4-year AROTC scholarship. He will be using it for tuition, so that is not taxable. His university has awarded him a room and board scholarship, so that is non-taxable. I understand that he will also be receiving a $1,200 year book allowance, and a $300/month stipend for the first year. Is any of that subject to taxes? We need to plan ahead. Thank you!
 
+1 Falcon

The stipend (subsistence allowance) is not taxable based on the IRS link below hat Capt MJ posted on another earlier thread:

To quote the IRS:
"ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable."

Source:
https://www.irs.gov/uac/Special-Tax-Benefits-for-Armed-Forces-Personnel
 
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DD has a room and board scholarship from her university. She pays taxes on it.
 
Gokings,
Not to highjack the thread, but April 15th will be here, and FASFA and CSS due before that. Falcon A's and other's thread links useful.

Do you (on this anonymous forum!) have any suggestions, directions, or recommendations (as in publications, tax preparation software better than others etc.) for those of us just starting to deal with children in college, and especially with AROTC, with taxable summer advanced training active duty pay; and taxable room and board college scholarship monies. Plan to have DS, age 18, file single, dependent, and we will still claim for 2015. Personally used Turbo tax up until last year, switched to H&R software b/c Turbo changes for 2014. May go back to Turbo. Thanks for all your financial postings.
 
Gokings,
Not to highjack the thread, but April 15th will be here, and FASFA and CSS due before that. Falcon A's and other's thread links useful.

Do you (on this anonymous forum!) have any suggestions, directions, or recommendations (as in publications, tax preparation software better than others etc.) for those of us just starting to deal with children in college, and especially with AROTC, with taxable summer advanced training active duty pay; and taxable room and board college scholarship monies. Plan to have DS, age 18, file single, dependent, and we will still claim for 2015. Personally used Turbo tax up until last year, switched to H&R software b/c Turbo changes for 2014. May go back to Turbo. Thanks for all your financial postings.

Thanks,Wilco.
There are pros and cons of all the tax prep DIY software programs. Using the same one consistently makes it easier to hit the bricks running as it retains all your basic data each year. I like Turbo as it seems to have the largest user base and so it gets tested more, however the majority of my clients use a professional tax preparer due to owning businesses and other complicating circumstances

For parents of future college students, here is what I tell my clients: (not just military/ROTC/SA/SMC aspirants)
  • Best financial aid for your child is high GPA and ACT/SAT scores.(Duh...right?) More students should practice earlier. Regardless of income level, performance counts.
  • File FAFSA in January or as early as possible as grant/merit/scholarship aid is first come first served. File the FAFSA even if you have to estimate your taxes and amend the FAFSA later!
  • Don't forget to see if you qualify for the American Opportunity Tax Credit and/or Lifetime Learning Credts. These are phased out for higher incomes.
  • Register for scholarship data bases like www.fastweb.com, (PM me for a list of legitimate scholarship websites)
  • Apply for merit scholarships, even if you are high income. Many grants and scholarships are not based on income but on educational talent.
  • Beware of any mail you receive that asks you to "pay a fee" to join a scholarship program. It's most likely a fraud scheme.
  • Get organized! Teach DS/DD to track IRS qualified education expenses so 529 plans and other resources can be utilizied tax free. Good to teach DS/DD to use Excel or Quicken or Mint.
  • Keep records. a simple iphone/cell phone camera photo of receipts can be emailed to mom/dad for tax records.
  • Don't neglect applying to private colleges. Often private endowments are far better stocked and more generous than public colleges. (e.g. Norwich vs Citadel)
  • Research regional consortiums like Western Undergraduate Exchange for discounted tuition between nearby state schools. It can be almost as affordable to across state lines to a public college and avoid full Out of state tuition.
  • Use XROTC scholarships for tuition and fees as this is not taxable. Use 529 money (if you have it) for room and board and personal computers, effective (retroactively), January 01, 2015.
  • Re-balance 529 investments as DS/DD gets closer to age 18. Don't have 100% of your funds in small caps when your DS/DD is a senior in HS. Have 2 years expenses in liquid money markets/cash and beyond 2 years invested in a capital preservation allocation.
I hope this helps! Everyone's circumstances are different and unique, so beware of any "one size fits all" advice that you read or hear from people or an anonymous forum. ;)

Source for computers now eligible as qualified educational expense:
http://www.usnews.com/education/bes...ent-changes-to-529-college-savings-plans-mean
 
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Our DD owed $1500 in federal and state income taxes from her scholarships that covered her room and board last year.
 
Our DD owed $1500 in federal and state income taxes from her scholarships that covered her room and board last year.

How did you determine this? I'm wondering if you are using a ROTC scholarship for R&B instead of tuition. The reason I am asking is because my DS uses his scholarship for tuition (tax free), however the school provides board for free as a perk for ROTC students. I don't believe a free meal plan is considered a scholarship per se.
 
Just got my son's 1098 for this year. He has 4 yr AROTC scholarship that covers tuition and Norwich pays R&B through a scholarship. When we subtract "qualified educational expenses" from "amount of scholarships", we have $15,000 that is not considered a qualified expense. I am assuming that this is what he will have to pay taxes on. Is this right?
 
If our sons/daughters aren't receiving a 1099, then the income isn't being reported. Do with that what you will.
 
Jcleppe, I believe so. Is there anything else we can subtract from that? Cost of books? Actually in the 15,000 is the uniform charge, which we should be able to subtract(I think) because it is required. We also pay health insurance to the school, but I would not think that would be in that total charge - I will have to look at it better and figure it out.
 
Here is the criteria from the IRS Publication 970, regarding taxation of scholarship funds:

Quoted from the IRS website: (Bolds are from the IRS)

"A scholarship or fellowship grant is tax free only to the extent:

  • It does not exceed your expenses;

  • It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and

  • It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. For exceptions, see Payment for services, later.


Use Worksheet 1-1 to figure the amount of a scholarship or fellowship grant you can exclude from gross income.

Candidate for a degree. You are a candidate for a degree if you:
  1. Attend a primary or secondary school or are pursuing a degree at a college or university, or

  2. Attend an educational institution that:
    1. Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and

    2. Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency.


Eligible educational institution. An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.


Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:
  • Tuition and fees required to enroll at or attend an eligible educational institution; and

  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.


Expenses that do not qualify. Qualified education expenses do not include the cost of:
  • Room and board,

  • Travel,

  • Research

  • Clerical help, or

  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution."
For full details see the link:
https://www.irs.gov/publications/p970/ch01.html
 
How did you determine this? I'm wondering if you are using a ROTC scholarship for R&B instead of tuition. The reason I am asking is because my DS uses his scholarship for tuition (tax free), however the school provides board for free as a perk for ROTC students. I don't believe a free meal plan is considered a scholarship per se.

DD's ROTC scholarship covers tuition. She had other scholarships that covered the cost of room and board. The university issues a 1098T and lays it out just like soccmomer states above. They listed a total of all scholarships she had received, both the ROTC one, as well as all of the others. I would imagine that the university will consider the amount they are covering for board will be listed as a scholarship and will be taxable. You'll know when you get the 1098T.
 
DD's ROTC scholarship covers tuition. She had other scholarships that covered the cost of room and board. The university issues a 1098T and lays it out just like soccmomer states above. They listed a total of all scholarships she had received, both the ROTC one, as well as all of the others. I would imagine that the university will consider the amount they are covering for board will be listed as a scholarship and will be taxable. You'll know when you get the 1098T.

I agree with USMAROTC fam.
 
DD's ROTC scholarship covers tuition. She had other scholarships that covered the cost of room and board. The university issues a 1098T and lays it out just like soccmomer states above. They listed a total of all scholarships she had received, both the ROTC one, as well as all of the others. I would imagine that the university will consider the amount they are covering for board will be listed as a scholarship and will be taxable. You'll know when you get the 1098T.

Thanks for the reply. My DS is a MS2. He did not get a 1098T last year. After a lot of research, my wife believes that he does not have to file at all if his income was under $6000. Board at his school is under $6000 so he doesn't have to file.
 
Thanks for the reply. My DS is a MS2. He did not get a 1098T last year. After a lot of research, my wife believes that he does not have to file at all if his income was under $6000. Board at his school is under $6000 so he doesn't have to file.

For single dependents, per the IRS:

You must file a return if any of the following apply.
• Your unearned income was more than $1,050.
• Your earned income was more than $6,300.
• Your gross income was more than the larger of:
• $1,050, or
• Your earned income (up to $5,950) plus $350
Source:
https://www.irs.gov/publications/p17/ch01.html#en_US_2015_publink1000170423
 
Thanks for the reply. My DS is a MS2. He did not get a 1098T last year. After a lot of research, my wife believes that he does not have to file at all if his income was under $6000. Board at his school is under $6000 so he doesn't have to file.
I think there is a good chance he won't have to pay taxes, as scholarship income is considered "earned income," and he should be below the threshold, unless there is other taxable income he received taking him above it. My daughter is also a sophomore this year, but I do not believe that there is any way that we can claim her as a dependent this year, as I can't realistically justify that we have provided more than half of her support for the year. She was at college for 9 months, plus another months on her summer cruise (she's Navy ROTC and got W-2 income for that) and really the only thing we had to pay for were flights to/from over breaks and a just a few miscellaneous items. DS is also a Plebe at USMA this year and we've received their "tax letter" letting us know that we can't claim his as dependent this year either. So we're have a double-whammy of losing both dependents for 2015 tax year. Good thing I prepared for this by increasing our tax-withholding at work.
 
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