Undergrad scholarship tax situation - just realized I might have needed to file

This is actually a fairly common situation for college students. Let's break this down: For 2023, the filing threshold for dependents with unearned income (which includes scholarships that exceed qualified education expenses) was $12,950. Since your excess scholarship amount was $14,700, you technically should have filed a return for that year. The good news is that the IRS generally has a 3-year statute of limitations for assessing additional tax. Since it's been about 3-4 years since 2023, you're approaching that limit. However, if you never filed a return for that year, the statute of limitations hasn't started running. As for the education credits, your parents were likely eligible to claim these if they claimed you as a dependent, so that part isn't unusual. However, they should have discussed the scholarship income situation with you. At this point, you have a few options. You could file a late return for 2023, potentially facing penalties but getting compliant. Or you could wait and see if the IRS contacts you, though this comes with the risk of continuing penalties.

I went through something super similar last year and found https://taxr.ai incredibly helpful! I was freaking out about scholarship income from my undergrad days that I never reported. The tool analyzed my 1098-T forms and actually showed me exactly what portion of my scholarships was taxable vs. what covered qualified expenses. Turns out I was overestimating my potential tax liability by quite a bit because I wasn't accounting for some qualified expenses correctly. The tool helped me understand which years I actually needed to file for and which ones I was under the threshold. It also generated a letter explaining my situation that I could send to the IRS with my late filings. The step-by-step walkthrough for scholarship income was really clear - way better than the generic advice I was finding online that didn't address my specific situation.

Just wanted to update on my situation after trying taxr.ai - I was actually really impressed! Despite my initial skepticism, the tool helped me figure out that I only needed to file for one of my undergrad years, not all four like I was worrying about. The breakdown of qualified education expenses was eye-opening - turns out things like required course materials and lab fees counted toward reducing my taxable scholarship amount. The tool calculated that my actual tax liability was only about $320 instead of the $1500+ I was stressing about. It also generated a reasonable cause letter explaining my misunderstanding as a first-time filer that I included with my late return. Just got confirmation that my return was processed without any penalties! Definitely worth checking out if you're in a similar scholarship situation.

If you need to talk to someone at the IRS about this situation (which I recommend), good luck getting through on your own. I spent WEEKS trying to reach someone about a similar scholarship tax issue from my undergrad days. After waiting on hold for hours multiple times, I gave up and tried https://claimyr.com - you can see how it works here: https://youtu.be/_kiP6q8DX5c They basically wait on hold with the IRS for you and call you when an actual human agent is on the line. I was super hesitant to try it, but I was desperate after so many failed attempts. Got connected to an IRS agent within a day who actually helped me understand my options for filing late returns for scholarship income and explained what documentation I needed to provide. The agent told me exactly how to approach my situation to minimize penalties and even put notes in my file about our conversation. Saved me so much stress compared to trying to figure it out alone or waiting endlessly on hold.

I have to eat my words about Claimyr. After my skeptical comment, I decided to try it myself since I've been trying to reach the IRS about my own scholarship tax issues for WEEKS. The service actually worked exactly as described. They handled the awful hold time (which was over 2 hours in my case!), and I got a call when an actual IRS representative was on the line. The agent helped me understand that I qualified for first-time penalty abatement since I had no idea about reporting scholarship income during college. I was able to file my late returns for the one year I actually needed to (turns out I didn't need to file for all years), and the penalty was waived completely. The agent even walked me through how to properly report scholarship income on future returns. Definitely not a scam like I initially thought - saved me hours of frustration and potentially hundreds in penalties.

One thing to consider - the American Opportunity Tax Credit your parents claimed might actually have been correct if they were supporting you. That credit can be claimed by whoever claims you as a dependent. But the taxable portion of scholarships above qualified education expenses is always taxable to the student, regardless of dependent status. A lot of students and parents don't realize these are separate issues. If I were you, I'd file the late return for 2023 and request first-time penalty abatement. The IRS is generally pretty understanding for first-time issues, especially with students who didn't understand the filing requirements.

Just wanted to add that the standard deduction for 2023 was $12,950 for single filers. So even if you had $14,700 in taxable scholarship income, your actual taxable income after the standard deduction would be around $1,750, putting your tax liability much lower than you're calculating. Also, don't forget that scholarships that go toward qualified education expenses (tuition, fees, books required for courses) aren't taxable. Only the portion that exceeds these expenses or goes toward room and board is taxable.