here's the thing that drives me crazy about scholarships being taxable... we're already broke college students and then the IRS wants to take more money from us??! i got a scholarship for being a first generation college student and now i have to PAY TAXES ON IT??? make it make sense! 😡 the worst part is my parents claimed me as a dependent so i can't even get some of the education tax credits myself. the whole system is designed to keep us broke i swear

I totally get the frustration about scholarship taxation - it caught me off guard too when I first dealt with it. One thing that might help is understanding that you can potentially reduce your taxable scholarship amount by maximizing your qualified education expenses. For example, if you buy required textbooks, lab equipment, or other school supplies out of pocket, those count as qualified expenses that can offset your taxable scholarship income. Keep all your receipts! Also, some fees that aren't obviously educational (like certain lab fees or technology fees) might actually qualify if they're required for enrollment. The timing of when you pay for things can matter too. If you have flexibility in when you purchase books or equipment, you might be able to strategically time those purchases to minimize your tax liability in a given year. It's not a perfect solution, but every bit helps when you're trying to reduce what you owe on that housing/meal plan money.

Don't forget about state taxes too! My daughter had scholarship money that was taxable federally but exempt on our state return. The rules vary by state, so make sure you check your state's specific treatment of scholarship income.

This is such a complex situation! I'm dealing with something similar with my college sophomore. One thing I learned that might help is to look carefully at Box 5 on the 1098-T form your daughter should receive from her college - that shows scholarships/grants received. Then compare it to qualified expenses (tuition, required fees, required books) to figure out exactly how much scholarship money is taxable. Also, don't forget that if you do claim her as a dependent, you might be eligible for the American Opportunity Tax Credit worth up to $2,500, which could be more valuable than her using the standard deduction. The credit phases out at higher income levels though. One more thing - if she had taxes withheld from her summer job, she'll need to file a return anyway to get those refunds, regardless of whether you claim her or she files independently. So she'll be filing either way, the question is just about dependency status and who gets which tax benefits. Have you checked if your income level affects eligibility for education credits? That's usually the deciding factor in these situations.

This thread has been incredibly helpful! I'm a veteran spouse dealing with a similar situation - my husband gets VA disability compensation and I was confused about how that impacts our EIC eligibility too. For anyone else reading this who might have VA disability pay, I learned that VA disability compensation is treated differently than military retirement pay for tax purposes. VA disability is completely tax-free and doesn't count as income at all for EIC calculations (neither as earned income nor toward the income limits). So if you have VA disability, it won't hurt your EIC eligibility the way military retirement pay does. Just wanted to add that distinction since I see a lot of confusion about different types of military-related income. Thanks to everyone who shared their knowledge here - it's so much clearer now why some military families qualify for EIC and others don't!

This thread has been incredibly informative! As someone who works with veteran families regularly, I see this confusion about military retirement and EIC all the time. One additional resource I'd recommend is contacting your base's Legal Assistance Office or the Military Family Life Counselor if you're still on active duty or have base access. They often have tax specialists who understand these military-specific situations and can review your specific circumstances for free. Also, for those mentioning state tax benefits for military retirement - it's worth noting that some states have started changing their military retirement tax policies in recent years to become more military-friendly. So even if you checked a few years ago, it might be worth looking again, especially if you're considering a move. The bottom line everyone's arrived at here is correct: military retirement = unearned income for EIC purposes, but make sure you're maximizing all the other credits you do qualify for. With proper planning, many military families find they're actually better off overall even without the EIC.

Has anyone mentioned the potential estate tax benefits? If (god forbid) something happened to either of you, married couples can pass unlimited assets to each other without estate taxes. Plus you get a doubled lifetime gift/estate tax exemption when married. Obviously you hope to never need to worry about this but it's another financial protection.

As someone who works in tax preparation, I can confirm that marriage would likely provide significant tax benefits in your situation! With one spouse having no income and two children, you'd almost certainly benefit from filing jointly. The key advantages would be: - Access to the married filing jointly tax brackets, which are more favorable than single filer rates - Nearly doubled standard deduction ($29,200 for married vs $14,600 single in 2025) - Potentially better positioning for child-related credits like the Child Tax Credit and Earned Income Credit One important consideration though - make sure to check how marriage might affect any state benefits you're currently receiving for the children (like state healthcare programs). Sometimes the tax savings can be offset by loss of other benefits, so it's worth doing a complete financial analysis. You might also want to run some numbers using tax software to see the actual dollar impact before making any decisions. Every situation is unique, but yours sounds like a textbook case where marriage would be financially beneficial from a tax perspective.

Has anybody had success getting the funding fee refund applied as a direct reduction to their loan balance instead of sent as a check? We just found out I should've been exempt (70% disability), but I'd rather have my loan reduced than get cash.

Just wanted to add another perspective on this - I'm a tax preparer who specializes in military and veteran clients, and I see this situation pretty frequently. Everything that's been said about the refund not being taxable is absolutely correct. One thing I always tell my clients in this situation is to keep really good documentation. Save your VA award letter showing the disability rating effective date, the refund letter from the VA, and your original closing documents. While the refund isn't taxable now, having this documentation will be important when you eventually sell the home since it affects your basis calculation. Also, if you do decide to make a principal payment with the refund money (which is a smart move), make sure to keep records of that payment too. It can help establish a cleaner paper trail if the IRS ever has questions about the timeline of events. The good news is this is a well-established situation in tax law, so there's no gray area or uncertainty about how to handle it!