Do I need to fill out a W-4 for receiving a $4,000 scholarship?

Question

I'm using Taxact to do my sisters taxes, she made almost $6000 last year and recieved the scholarship for $4000 and now the IRS says she owe them!? Does that make sense?

Thanks in advance

The software asked if she recieved any scholarships and how much, after adding the amount her return of almost $500 became negitive and said she owes $74 to the IRS and $57 to the States.

Answer 1

Here is the link where you can see a quick overview of the IRS rules regarding scholarships.
http://www.irs.gov/publications/p970/ch01.html

I think you are doing something wrong in your tax program AND a W-4 is what you fill out when you get a job and has nothing to do with filing your taxes at the end of the year.

I think your sister should go to a tax professional for help as scholarships are a gray and complex tax area and those tax programs are not meant for complex situations.

Answer 2

You only file a W4 with an employer to tell them how much tax to withhold from your pay. It has nothing to do with tuition or scholarships.

Your sister may owe taxes if she didn't have enough money withheld to cover her tax liability. The scholarship is not taxable income to her, but it will affect her ability to claim tuition expenses since she must reduce the tuition paid by the amount of the scholarship.