Is scholarship income earned or unearned for Additional Child Tax Credit? Will my student need to file with $3500 work study + $2000 scholarship?

Wait, I thought scholarship money used for tuition wasn't taxable in the first place? Only the portion used for room and board, etc. Would that change the calculation? And does the parent have any choice about whether to include the student's income in household income, or is it strictly based on whether they're required to file?

You're absolutely right that scholarship/grant money used for qualified education expenses (tuition, required fees, books) is not taxable. Only amounts used for room, board, or other non-qualified expenses become taxable. The parent doesn't have a choice about including the student's income in household income for Premium Tax Credit purposes. It's determined by the filing requirement rules. If the student isn't required to file (based on income thresholds), then their income isn't included in household MAGI for the Premium Tax Credit calculation, regardless of whether they actually file or not.

How does this work? Does it just give general advice or does it actually look at your specific tax situation? I've been trying to figure out this exact issue and my tax software doesn't really help explain the interactions between these credits.

I'm skeptical - there are so many "AI tax tools" now. How is this different from just using TurboTax or talking to a tax pro? Did it give you advice that was actually specific to your situation rather than generic info I could find on the IRS website?

It works by analyzing your specific documents and tax situation, not just giving general advice. You upload your documents (W-2s, 1098-Ts, prior tax returns) and it identifies optimization opportunities specific to your situation. The key difference from TurboTax is that it explains WHY certain choices affect your taxes, rather than just calculating numbers. With this scholarship situation, it showed me exactly how much Premium Tax Credit we'd lose by reporting different amounts as taxable, and compared that to the Additional Child Tax Credit increase. It basically does the analysis a tax pro would do, but you don't have to schedule an appointment or pay their hourly rate.

How much does this service cost? Seems like you shouldn't have to pay just to talk to the IRS about your taxes. And what happens if the IRS gives you wrong information? I've heard horror stories about getting different answers from different agents.

This sounds like a scam tbh. How does a third party service somehow magically get you through the IRS phone queue faster? Do they have some special relationship with the IRS? And is it even secure to have them involved in your tax calls?

The service just holds your place in line - they don't get any special treatment from the IRS. It's basically like having someone wait on hold for you. They just connect the call when an agent picks up, so there's no security concern since they're not on the actual call with the IRS agent. As for getting accurate information, I always ask the IRS agent for their badge number and make notes about what they tell me. While different agents can sometimes give different answers, I've found that for specific technical questions like this one about credit interactions, they'll usually look up the exact rules to give you a definitive answer. I also verified what they told me against IRS Publication 970 which covers tax benefits for education.

So does this mean your student's income DID count toward PTC household income once you filed their return? Or were they still exempt from household income because they were below the filing requirement threshold, even though you voluntarily filed? This distinction seems really important.

Their income remained exempt from the household income calculation for Premium Tax Credit purposes. The key is that they were below the filing requirement thresholds ($12,950 for earned income and $1,250 for unearned income), so even though we voluntarily filed a return, their income didn't have to be included in the PTC household calculation. The IRS looks at whether they were required to file, not whether they actually filed. This is an important distinction that many tax software programs don't explain well. So we got the benefit of claiming the American Opportunity Credit without any negative impact on our Premium Tax Credit.

Good question! For Additional Child Tax Credit purposes, earned income refers to wages, salaries, tips, self-employment income, and certain disability benefits. Work-study income does count as earned income because it's reported on a W-2 as wages. However, the confusion might be because you're thinking of the Earned Income Tax Credit (EITC), which has its own specific definition of earned income. For the Additional Child Tax Credit, what matters is having at least $2,500 of earned income to begin qualifying, but the credit amount is based on your overall tax situation, not just earned income.

Thanks for clearing that up! I was totally mixing up ACTC requirements with EITC. That makes much more sense now. So if I understand right, the parent needs earned income to qualify for ACTC, but the scholarship question is more about how it affects household income for Premium Tax Credit, not whether it counts for the ACTC calculation itself?