1098-T (yet another one)

Forum|Forum|2 years ago
February 8, 2024
2 replies
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Ok, so on my son's 1098-T

Box 1: 10,500 (qualified expenses)

Box 5: 13,000 (scholarships)

None of the money from box 5 was refunded. The overage (since the scholarship received can be applied to anything per the scholarship rules) was simply applied to his on campus dorm bill. Basically, son received a 6500/semester scholarship that can be used for anything, tuition and fees/semester 5250, dorm housing 5500/semester, so the excess scholarship helped pay dorm expense. Does any of this have to be declared on 1040 (excess income, since he will not apply for hope credit or AOC). He has other income so he will be filing a 1040. Thank you.

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AmyC

Employee

Yes, but how much is up to you based on IRS limitations. Box 5 - box 1 = taxable income is the lowest income, no scholarship route but usually not the best route. There is enough money for somebody to get an education credit.

You can say box 5 $13,000 covered $6500 in tuition and the rest went to dorms. That allows $4,000 for AOTC with an income of $13000-6500 = $6500 taxable income. The small increase in taxable income should be vastly outweighed by the large credit.

The credit and income limits:

For the full credit, your MAGI (modified adjusted gross income) is less than $80,000 ($160,000 if you're filing jointly)
For a reduced credit, your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you're filing jointly)
There is no credit given if your MAGI is above $90,000 ($180,000 if you’re filing jointly)

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ProffieJoeAuthor

Thanks-

I guess I am still a bit confused how to actually fill this out in TT since I am asked about the boxes on the 1098-T, and I am told (by the software) I (well, my son, since I am not claiming him as a dependent) that he is not eligible for the credit, probably because that Box 5>Box1.

Thanks again - I appreciate the assistance.

Hal_Al

Employee

You have to use a workaround in TurboTax to "fill this out". For more specific help, additional info is needed.

Why is you son not being claimed as a dependent?

How much other income does the student have?

Is the student an undergrad?

While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out. A student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he/she supports himself by working. He cannot be supporting herself on student loans & grants and 529 plans and parental support. It is usually best if the parent claims that credit.

If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500 (AOTC shifts to all non refundable)

Hal_Al

Employee

Q. Does any of this have to be declared on 1040 (excess income)?

A. Yes. Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free. Scholarship amounts that exceed QEE is taxable income, on the student’s tax return. Room and board are not QEE, so money applied to "dorm bill" is taxable.

If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will treat the difference as taxable income, unless you enter additional QEE at books and other expenses. The fact that None of the money from box 5 was refunded, does not make it non taxable.

Furthermore,

There is a tax “loop hole” available. 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 school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,500 in box 5 of the 1098-T and 13,000 in box 1. At first glance he/she has $2500 of taxable income and nobody can claim the American opportunity credit. But if she reports $6500 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 $5500 of taxable scholarship income, instead of $6500.