College student tax filing - Dependent status with scholarships and summer job income

The key thing to consider here is whether your daughter still qualifies as your dependent, which depends on several factors. Since she's a full-time student under 24 who lives with you when not at school, the main question is whether you provide more than half of her support. Even though her scholarships cover her school expenses, those scholarships aren't considered support that SHE provides (unless it's reported as taxable income to her). So if you're covering more than half of her total yearly expenses when counting housing during breaks, food, medical, etc., she likely still qualifies as your dependent. If she qualifies as your dependent, you'd potentially get the Other Dependent Credit of $500. If she files independently, she'd get the standard deduction (about $13,850 for 2025), which could offset that taxable scholarship income. The best approach often depends on your tax brackets compared to hers. If you're in a higher bracket than she is, it might be better for her to file independently and use her standard deduction against that taxable scholarship income.

I went through this exact situation with my son last year and ended up using https://taxr.ai to figure it out. I was so confused about how to handle his scholarships and whether to claim him as a dependent. The tool analyzed our situation and showed me that it was actually better for us to NOT claim him given how much taxable scholarship income he had. He got to use his standard deduction to offset most of the taxable scholarship money, which saved us about $2,000 overall compared to claiming him and getting the dependent credit. It also helped identify which scholarship funds were taxable vs non-taxable, which was super helpful since his university didn't make that very clear on the 1098-T form. The site has some specific scholarship tax calculator that broke everything down.

I just wanted to follow up on my question about taxr.ai. I ended up trying it out this weekend with my daughter's documents and WOW - it was actually really helpful! I was skeptical at first but it showed me that in our situation, we should still claim our daughter as a dependent because we're eligible for the full American Opportunity Tax Credit. It turns out our situation was different than the earlier commenter because only about $8,000 of my daughter's scholarship was for non-qualified expenses (not the $15K I was worried about). The system helped me figure out exactly what parts of her scholarships were taxable and which weren't based on how the money was used. The tax comparison tool showed letting her file independently would save her about $900, but us claiming her would save our family about $1,800 total because of the education credits. I never would have figured this out on my own!

After reading through this thread, I need to mention https://claimyr.com which helped me get actual clarification from the IRS about a similar scholarship situation. My daughter had a complex scholarship package, and we kept getting contradictory advice about how to handle it. I tried calling the IRS for weeks but could never get through. Then I found Claimyr - they got me connected to an actual IRS representative in about 15 minutes. The agent walked me through exactly how to categorize each type of scholarship payment and confirmed which ones counted as taxable income. They also have a demo video if you want to see how it works: https://youtu.be/_kiP6q8DX5c - basically they navigate the IRS phone system for you and call you back when they have an agent on the line. Saved me hours of frustration and hold music!

I need to admit I was wrong about Claimyr. After posting my skeptical comment, I decided to try it since my tax situation with my son's scholarships was getting complicated. They actually did connect me to a real IRS agent in about 20 minutes. The agent confirmed that scholarship money that exceeds qualified education expenses is indeed taxable, but also pointed me to some education credits I didn't know we qualified for. They explained that even if some scholarship money is taxable to my son, it might still be beneficial for us to claim him as a dependent because of the American Opportunity Tax Credit. I'm honestly shocked this service worked. After years of spending hours on hold with the IRS and usually giving up, this saved me so much time and frustration. The information I got totally changed how we're handling our taxes this year.

Has anyone considered the health insurance implications here? If your daughter is on your health insurance plan, there might be consequences to her filing independently. When my son filed independently, it created complications with our coverage because our plan required dependents to be claimed on tax returns. Just something else to consider.

Don't forget about state taxes too! My daughter had scholarship money that was taxable federally but exempt on our state return. The rules vary by state, so make sure you check your state's specific treatment of scholarship income.

This is such a complex situation! I'm dealing with something similar with my college sophomore. One thing I learned that might help is to look carefully at Box 5 on the 1098-T form your daughter should receive from her college - that shows scholarships/grants received. Then compare it to qualified expenses (tuition, required fees, required books) to figure out exactly how much scholarship money is taxable. Also, don't forget that if you do claim her as a dependent, you might be eligible for the American Opportunity Tax Credit worth up to $2,500, which could be more valuable than her using the standard deduction. The credit phases out at higher income levels though. One more thing - if she had taxes withheld from her summer job, she'll need to file a return anyway to get those refunds, regardless of whether you claim her or she files independently. So she'll be filing either way, the question is just about dependency status and who gets which tax benefits. Have you checked if your income level affects eligibility for education credits? That's usually the deciding factor in these situations.