Case Study 4: Kiddie Tax (continued)

In another scenario, the student Juan chooses to include the entire grant as income on his return. Juan's parents can claim the entire $4,000 education expenses toward the American opportunity credit. Juan's gross income is $11,000 + $4,000 = $15,000. As a dependent, Juan now has a filing requirement and unearned income (the taxable scholarship) over the kiddie tax ceiling amount.

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The kiddie tax applies in this scenario and Juan will use Form 8615 to compute his tax. Form 8615 is out of scope. His parents claim $2,500 for the American opportunity credit.

Note: The kiddie tax ceiling amount is adjusted for inflation each year.

Education Credits Workout

Qualifying Expenses

Case Study 4: Kiddie Tax (continued)