# Utterly Perplexed - Complex Tax Q - Dual US/UK child's full-ride US scholarship... How (and who!) to file?



## EM UK-US (Jan 24, 2021)

Thanks in advance for any guidance here. Utterly perplexed this year.

*Background
Me:* US citizen, lived in UK since 90s, all income -circa $24k/year- generated in the UK. Pay UK taxes and national insurance and 'single' on IRS 1040. No investments, no complicated tax issues. One child only, below.

*Daughter:* 18 yo. Grew up in London UK, also dual US citizen. Got full ride scholarship to American university _(amazing!)_ she started in September. _Taxable_ part of her scholarship (ie room, board, travel, personal expenses) circa $12.5k/semester. Additional questionable income category - provided with circa $2k/semester worth of university required health insurance, required as she can't take her UK national health insurance with her to the US. University's website suggests the health insurance addition to her scholarship is taxable, whereas another similar university's guidance describes it as non-taxable as it is a requirement of registration at the university, hence a requirement of study --- as it is at hers. 

*Additionally*: Since April daughter has been providing online tutoring with UK student which, in 2020, generated an income of circa $5.5k, of which circa $800 happened remotely while living on campus in the US. 

Daughter lived on US soil, on campus, Sept through Thanksgiving. Returned to the UK. Will complete spring semester remotely, staying in the UK, and hopes to return in-person stateside in Sept 2021. She continues tutoring her UK student and will now also will do a US 'campus' job 10hrs/wk, but remotely from the UK. 

UK has a different tax year to US, running 01 April - 31 March so daughter will not declare her 2020 UK earnings here, and have paperwork for it, until later in 2021/start 2022.

I seem to understand that as I can declare her as a dependent, she is not allowed to, though I can also choose not to but she still can't even if I make that choice. *I don't understand the implications of all this and what is most sensible to do.*
I also seem to understand that AOTC may not apply in our case because of her taxable scholarship, other than perhaps for her books purchases over fall semester - though perhaps I'm wrong there. So my key q's:

What are the implications of declaring her versus not declaring her?
Who must declare, or is better off declaring, her taxable scholarship income?
Who must declare, or is better off declaring, her earnings from work?
Who does she owe taxes to for earnings made remotely, ie the online tutoring she did of a UK pupil while based in the US in the fall, or the 'campus' work she's starting now on UK soil for her US university?
Finally, what about the taxability of her required health insurance, covered by her university?
*Any guidance on how to start with this one would be most appreciated! *


----------



## 255 (Sep 8, 2018)

EM UK-US -- Of course, the standard answer is to do the taxes both ways (your daughter as a dependent or she files her own 1040.) In your case, it doesn't appear to matter either way, since your income is probably excluded by the FEIE and hers is under the standard deduction. Personally, I would lean to her filing a separate tax return, for multiple reasons, two being: a. a tax return is often used for proof (e.g. to qualify for loans, and b. your daughter will have to physically live in the U.S. for 5 years, if she ultimately wants to pass her U.S. citizenship down to your potential grandchildren,

Specifically, to answer your individual questions, in order:

1. No real implications either way. She will more than likely receive a 1098-T, declaring the taxable portions or her scholarship, so she'll be in the system.
2. Again, it doesn't matter, because of the standard deduction threshold. It may be advantages to her to file on her own to take advantage of any tax credits (if she hasn't received them yet, she'll at least be able to claim her $1,800.00, in stimulus credits.)
3. She'll have to declare her earnings from her own work -- if she did the work, while in the U.S., she would have to file in the U.S. Again, here she probably wouldn't owe any tax, because of the de minimis nature of her earnings.
4. As I mentioned before, if she did work in the U.S., her tax allegiance for that work is the U.S. (I know nothing about the UK tax system.) I suspect, if the UK has a filing/tax requirement, for her small amount of earnings, she would more than likely be protected by the US-UK Tax Treaty from double taxation. If she is an employee of her university (in addition to being a student,) she'll most likely owe taxes to the UK, but will be able to exclude her UK earned income from her U.S. tax filings utilizing the FEIE. Basically, you owe taxes where you are physically doing the work, irrespective of where your employer/clients resides.
5. There is no longer any tax requirement for heath insurance. If her school is providing health insurance, as part of her scholarship, any taxable benefit should show up on her 1098-T. 

Again, I would recommend you "cut the apron strings" reference her taxes -- it will be easier for you both. Cheers, 255


----------



## Nononymous (Jul 12, 2011)

Rather good odds that the stimulus benefit will rise to at least $3200, from $1800, which is an even bigger argument in favour of filing separately.


----------

