1098T questions scholarship, refunds

Forum|Forum|3 years ago
March 24, 2023
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I'm so confused!! 😞

On my son's 1098T, box 1 shows $2,010.17 and box 5 scholarship shows $9,799.15. The "Tuition and Mandated fees" on his school account shows $3,090.62. Also my son received a refund totaling $3,927.73. My first question besides why is box 1 only showing the $2,010.17 and not the $3,090.62 since that was the mandated tuition and fees, am I suppose to include the difference between box 5 and box 1 ($7,788.98) as earned income on his taxes? If it is to be included, do I include it on my taxes since he is my dependent or his since he did have a small job and has a W2? Second the refund my son received for $3,090.62, do I need to include that total as earned income or is already included/deducted on the 1098T? Before any money was refunded from school, we used scholarship money to pay for dorm and meal plan, which I understand is not "educational expense". Any help so much appreciated. 😞

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Hal_Al

Employee

Q. My first question besides why is box 1 only showing the $2,010.17 and not the $3,090.62 "Tuition and Mandated fees" on his school account?

A. Only the school can answer that.

Q. am I suppose to include the difference between box 5 and box 1 ($7,789) as taxable scholarship income* on his taxes?

A. Yes, particularly since you know it was used for non qualified expenses ( dorm and meal plan).

Q. The refund my son received for $3,090.62, do I need to include that total as earned income or is already included/deducted on the 1098T?

A. It's already included in the $7789, reported from the 1098-T.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income.

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2022 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $12,950 filing requirement and the dependent standard deduction calculation (earned income + $400). It is not earned income for the kiddie tax and other purposes (EIC, IRA contributions).

Hal_Al

Employee

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 $10,000 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.