Excess scholarship as earned income

[Randall]

I prepared a return for a dependent.  Excess scholarship as income on line 8 from Sch 1.  ATX calculated the standard deduction with W2 income plus $400.  Parents came in and dependent came in over a week later to sign 8879.  ATX made me recreate the efile and when I did, ATX used the excess scholarship income (as earned income) and increased the standard deduction up to the full amount.  I guess ATX had a recent update.  Anyone else see this.  Just a heads up.

 

[RitaB]

On 3/14/2023 at 9:17 AM, Randall said:

I prepared a return for a dependent.  Excess scholarship as income on line 8 from Sch 1.  ATX calculated the standard deduction with W2 income plus $400.  Parents came in and dependent came in over a week later to sign 8879.  ATX made me recreate the efile and when I did, ATX used the excess scholarship income (as earned income) and increased the standard deduction up to the full amount.  I guess ATX had a recent update.  Anyone else see this.  Just a heads up.

 

Yes, someone on the Facebook group reported an issue with the calculation being incorrect, and they fixed it.  Thanks for the heads up, and I recommend making friends with "ATX Tax Software Support Group" if y'all have a Facebook account.

[Terry D EA]

Just wondering but that sounds a bit bizarre to me. Was the program using the dependent standard deduction and then recalculated with the non-dependent standard deduction? Is this maybe what happened? I would check to see if dependency changed in the returns. Normally the excess scholarship funds to go on line 8 or 7 of the 1040. Different line for different years. Adding to or taking away from earned income shouldn't have any affect on the standard deduction or itemized deduction for that matter.

[RitaB]

7 minutes ago, Terry D EA said:

Just wondering but that sounds a bit bizarre to me. Was the program using the dependent standard deduction and then recalculated with the non-dependent standard deduction? Is this maybe what happened? I would check to see if dependency changed in the returns. Normally the excess scholarship funds to go on line 8 or 7 of the 1040. Different line for different years. Adding to or taking away from earned income shouldn't have any affect on the standard deduction or itemized deduction for that matter.

It's a dependent return.  A dependent with 2,000 earned income will have a different SD than a dependent with 5,000 earned income.

[Terry D EA]

Well see, there you go. I don't do too many returns like this and was not aware the SD differs based on earned income. Thanks!!!

[Randall]

Thanks for comments.  I was unaware that the excess scholarship income would count as earned income for purposes of calculating the SD.  As a matter of my normal routine, when there is a long wait between completing the return and client coming in to sign the 8879, when ATX forces me to recreate the efile, I always compare the return in the program with my pdf copy I had made previously.  When I saw a difference, I starting looking.  Yes, Terry, the program must have recalculated when I opened the return.

[Randall]

16 hours ago, RitaB said:

Yes, someone on the Facebook group reported an issue with the calculation being incorrect, and they fixed it.  Thanks for the heads up, and I recommend making friends with "ATX Tax Software Support Group" if y'all have a Facebook account.

I am on that group but I haven't been paying much attention to it.  I should start to look at the postings more.  Thanks.