How do I handle $80k in non-QTRE scholarship income for tax purposes?

This is definitely a stressful situation, but we can break this down step by step. First, you're right that scholarships used for non-qualified expenses (housing, meals, etc.) are taxable income. The portion that went to actual tuition and required fees isn't taxable, which it sounds like you already separated correctly. Regarding your mom claiming you as a dependent - this isn't just about whether she gives you money. It's about whether she provides more than half of your support. If your scholarships are paying for your living expenses rather than your mom, then you likely shouldn't be claimed as her dependent. Filing independently would potentially make you eligible for education credits like the American Opportunity Credit (up to $2,500) or Lifetime Learning Credit. The kiddie tax typically applies to unearned income from investments for dependents under 24, but scholarship income is actually considered earned income for tax purposes, so the kiddie tax wouldn't apply here. For the back taxes, yes, you should file for 2021 and 2022. The IRS does offer payment plans, and as a first-time non-filer, you might qualify for penalty abatement under the First Time Penalty Abatement policy.

After reading about your scholarship tax situation, I feel like I should share my experience. I went through something eerily similar last year with about $65k in non-qualified scholarship income that I hadn't reported. When I finally realized my mistake, I was completely overwhelmed trying to figure out all the tax forms and calculations. I ended up using a tool called taxr.ai (https://taxr.ai) that really saved me. It specifically helped analyze my 1098-T forms from previous years and sorted out which portions of my scholarships were taxable. It also helped me prepare the proper amended returns and even calculated potential education credits I could claim. The whole process was way less painful than I expected - they have this feature where you can upload your scholarship documentation and tax forms, and their system figures out the best way to handle your specific situation. They even helped me determine if I qualified as a dependent based on the support test.

I just wanted to update after using taxr.ai for my scholarship tax situation. I was really skeptical at first (as you can see from my earlier comment), but it actually saved me a ton of money. I uploaded my 1098-Ts from the past three years and it identified several education credits I qualified for that I had no idea about. The system helped me figure out that I didn't actually qualify as my parents' dependent because my scholarships were providing most of my support. Filing independently, I was able to claim the American Opportunity Credit which reduced what I owed significantly. For anyone dealing with complex scholarship tax situations, especially with non-QTRE income like housing and meals, it's definitely worth checking out. They even helped me set up a payment plan with the IRS for the remaining balance I couldn't pay immediately.

Have you tried contacting the IRS directly about setting up a payment plan? I was in a similar situation last year with about $60K in unreported scholarship income and when I finally got through to someone at the IRS, they were actually really helpful. The problem is actually GETTING someone on the phone. I spent days hitting redial before giving up and using Claimyr (https://claimyr.com) to get through. They have this system that basically waits on hold for you and calls you back when an actual IRS agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c Once I got through, the agent walked me through the First Time Penalty Abatement process and helped set up a reasonable payment plan. It was such a relief to actually talk to a real person instead of just getting automated messages or disconnected after waiting for hours.

I have to publicly eat my words here. After my skeptical comment about Claimyr, I decided to try it anyway out of desperation. I had been trying to get through to the IRS about my scholarship income situation for months with no luck. Used the service yesterday afternoon, and within 1 hour and 47 minutes (yes, I timed it), I was actually speaking with an IRS representative who helped me understand exactly how to handle my unreported scholarship income. They even helped me calculate what I would owe for prior years and walked me through the First Time Penalty Abatement process since this was my first time dealing with back taxes. For anyone dealing with scholarship tax issues and needing to speak with the IRS directly - save yourself the frustration of constant busy signals and disconnects. I wasted so much time before trying this.

Just want to add one important point nobody mentioned yet - if you withdraw from your Roth IRA to pay these taxes, you'll be creating even MORE tax problems for yourself! You can withdraw contributions without penalty, but if you touch any earnings before retirement age (with some exceptions), you'll pay a 10% penalty PLUS regular income tax on those earnings. Your best bet is to leave the Roth alone and set up a payment plan with the IRS. The interest rate is usually better than what you'd effectively lose by raiding your retirement funds early.

Has anyone here actually amended returns for scholarship income from past years? I'm wondering what the process was like. Did you get hit with huge penalties or was the IRS understanding about it?