Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 21, 1994 TAG: 9402210330
SECTION: MONEY PAGE: A-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Medium
When she was in the fourth grade, she was in a car accident and was awarded an insurance settlement of $5,000, which was placed in a court-appointed CD.
On her 18th birthday, she received what had grown to $8,900. She paid $5,000 of that for a car, used $1,500 for the family contribution stipulated in her financial aid package, bought a used computer for $500, and paid general college expenses, car expenses and some of her medical expenses. She also set some money aside to pay taxes on the $8,900, which I told her might be about $900.
How do we do the tax thing? Does she file a separate form? Do we claim her as a dependent? Does she include income from her work-study? How will all of this affect her financial aid? Do we list $8,900 as income?o
A: Personal injury awards are excludable from income; thus, the $5,000 settlement was not taxable.
The interest earned would be considered taxable income, but not all in 1993. The interest earned each respective year would have been reportable in that year. If your daughter's total reportable income exceeded $1,040 for 1985, $1,080 for 1986, $500 for 1987 through 1990, $550 for 1991 or $600 for 1992 or 1993, she should have filed her own income-tax return.
For years before 1993, your daughter would be your dependent and would not have to file her own return unless her income exceeded the amounts above. However, 1993 is more complicated.
Your daughter would be considered your dependent for 1993 only if you and your husband provided more than half of her total support. The scholarships and grants do not count as part of her total support, but the loans and the money she spent from the insurance settlement do count.
Your daughter's contribution toward her total support would consist of the $8,900 CD proceeds, the income from her work-study activities and the loan proceeds, minus any amount she saved.
You and your husband would have contributed her pro-rata share of the fair rental value of your home (including utilities and repairs) and food, plus any amounts you spent specifically on her for clothing, education, medical and dental care, travel, recreation, etc. If the total contributed by the two of you toward her support exceeds the total contributed by her, then you may claim her as your dependent on your tax return.
The interest she earned on the CD during 1993 would be reportable income for tax purposes, as well as her income from the work-study program. The loans would not be reportable. The scholarships and grant are not reportable if they are used for tuition, fees, books, supplies and equipment required for courses at the educational institution and she is a degree candidate. Amounts used for room and board do not qualify for the exclusion and generally are reportable income.
If you claim your daughter as a dependent for 1993, she will be required to file her own return if her total reportable income exceeds $600. If you cannot claim her as a dependent, she would not be required to file unless her total reportable income exceeded $6,050.
Answered by James B. Taney of Anderson & Reed
by CNB