1098

Forum|Forum|1 year ago
February 13, 2025
2 replies
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My daughter's box 1 is 10,292 and box 5 is 13,700. We are claiming her and trying to make sure we do this accurately to get the best tax credit possible. Some of her scholarship can be used towards room and board ($4600) and the rest is just for tuition. Should she claim the $4600 on her return as income? If so, do we put all the info into our return and state that she is claiming the $4600 as income? Do I change any of the amounts in Box 1 or Box 5 when I put in the amounts?

KrisD15

Yes, your daughter, as the student, would claim any taxable income on her return.

No, you don't change any of the boxes on the 1098-T.

No, if the student is simply going to claim the excess scholarship (Box 5 less Box 1) Form 1098-T does not need to be entered.

Form 1098-T is entered into the program so that the program can make a calculation to try to get an education credit for the taxpayer that claims the student.

The numbers on the 1098-T can be misleading if tuition is paid in one year, but the scholarship crosses and posts the next calendar year.

With just the numbers you list, 10,292 tuition and 13,700 scholarship, the student would be responsible for claiming 3,408 as taxable income. (It doesn't matter what was paid with what funds in the year, you can allocate as you like for the best tax break)

If there were books and supplies purchased, those expenses would also count but not be listed on the 1098-T.

If the student claims MORE of the scholarship as taxable income, that could free up expenses meaning you could be eligible for a credit.

You can enter the 1098-T and go through the interview if you would like to try to get a credit even if it means your daughter might need to claim additional income. Sometimes the tax on the income is less than the credit.

If not, simply enter the taxable income on the student's return.

IRS Pub 970 has some great tips and is fairly easy to read.

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heathhbgAuthor

So if she claims 4600 (which is what she paid for room and board), I leave box 1 & box 5 as they are on the 1098 T on my return and put the amount she is claiming on her taxes when it asks?

Hal_Al

Employee

Here's a little back ground on where we might be headed in your case.

There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $5000 of taxable scholarship income, instead of $6000.

Earlier you said "Some of her scholarship can be used towards room and board ($4600) and the rest is just for tuition". I took that to mean that $9100 [13700 - 4600 = 9100] of the scholarship was restricted to being used for tuition. If that's not the case, you can use $4000 of tuition for the tax credit, instead of just $1192. She'll have to report more than $4600, as income, but the family comes out ahead (and she may still pay no tax, depending on her other income, if any).

Q. Why would I leave box 5 empty?

A. I'm just suggesting short cuts, for entering all this in TurboTax (TT). Theoretically TT can handle it, by entering the full 1098-T (on both your return and her's) and answering all the follow up questions correctly. But, it can get messy. The modified 1098-T that you enter in TT is not sent to the IRS.

Hal_Al

Employee

Q. Should she claim the $4600 on her return as income?

A. Yes. If that is her only income, it s not enough for her to have to file a tax return.

Q. If so, do we put all the info into our return and state that she is claiming the $4600 as income?

A. No. Nothing about her income will go on your tax return. If you follow the TurboTax (TT) interview correctly, you will get a message telling you to have her report the $4600 on her tax return.

Q. Do I change any of the amounts in Box 1 or Box 5 when I put in the amounts?

A. Yes and maybe not. If you follow the TurboTax (TT) interview correctly, it will do all that for you. But, the simple way is just enter $1192 (10292 - [13700 - 4600] = 1192) in box 1 and leave box 5 blank. That will get you the tuition credit.

You can add any books and a computer as qualified expenses to that 1192.