1098T

Forum|Forum|1 year ago
January 28, 2025
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My son who is a 2nd year full time college student received his 1098t form. Box 1 shows 6xxx and box 5 9xxx. He only paid approx 500 dollars out of pocket for books. The rest of the monies went towards on campus dorming. He had gotten maybe 600 in checks. (Actually don’t even know if he needed student loans at this point because we never received an updated breakdown of costs, grants scholarships.) My main question is, how much, if any does he have to claim as taxable income on his own return? Also, I keep reading about a tax loop hole for him claiming his scholarships as income and that way would qualify me for the credit? I was told by a supposed tax professional that he didn’t need to file taxes for the excess money? I’m so confused

Not A Product Question

SabrinaD2

Since your son’s 1098-T shows $6,000 in qualified expenses (Box 1) and $9,000 in scholarships (Box 5), the $3,000 excess ($9,000 - $6,000) is taxable because it was likely used for non-qualified expenses like room and board. This amount should be reported as taxable Income. See IRS Topic 421 and IRS Pub 970.

Click here to use the IRS Tool: Do I include my scholarship, fellowship, or education grant as income on my tax return?

You can also reallocate $4,000 of the scholarships to taxable income, freeing $4,000 of qualified expenses for you to claim the American Opportunity Tax Credit (AOTC). This would increase his taxable amount to $7,000 ($3,000 excess + $4,000 reallocated), but you could claim up to $2,500 in credits by filing Form 8863. TurboTax can help with this when you enter the 1098T,

For more, see TurboTax Guidance on Taxable Scholarships. See TurboTax Help on 1098-T Forms.

Kimv 12Author

So I would claim 7000 as taxable income on his taxes? Under what category? Which would make him owe quite a bit (I would have to pay because he doesn’t work) Then what do I put in for information for his 1098t and college information? They really make earning scholarships not worth it when you have to owe so much back.

Hal_Al

Employee

Q. So I would claim $7000 as taxable income on his taxes?

A. Yes. That would allow you to claim $4000 of tuition, on your return for the AOTC. The $7000 could be reduce by any book or computer cost he has.

Q. I was told by a supposed tax professional that he didn’t need to file taxes for the excess money?

A. That is also correct. Assuming the $7000 is his only income, it is less than the $14,600 filing requirement. So, he is not required to file a tax return. Even if he does, he will owe no tax. His standard deduction will wipe out the tax*. You may want him to file just to document him reporting the income, allowing you to use the "loop hole" to claim the AOTC.

Taxable scholarship is entered on line 8r of Schedule 1. The simple way to do that in TurboTax, is enter a 1098-T on his return with box1 blank and $7000 in box 5. The 1098-T he enters is not sent to the IRS, so there is no discrepancy. On your return, do something similar. Enter a 1098-T with $4000 in box 1 and box 5 blank.

The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450. It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.