Didn't receive 1098-T

Forum|Forum|4 years ago
April 8, 2022
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My dependent child did not receive a 1098-T from the university because financial aid (grants) was more than tuition and fees paid. Do we need to report any education information in our taxes for our child?

RaifH

It depends. If the scholarship was used for qualified education expenses, then it would not be taxable and does not have to be reported. In addition to tuition, this would include supplies, books, and any fees that are necessary for attendance. It would not include room and board or travel.

If you would be eligible for an education tax credit and your child has room and board expenses, you can use the scholarship money to pay for room and board. This would make that portion of the scholarship taxable, but it would free up tuition expenses that would otherwise have been paid by the scholarship. You can then apply those tuition expenses towards an education tax credit. Although you would be paying tax on the scholarship, the benefit of the education tax credit usually is greater than the tax you pay on the scholarship.

Hal_Al

Employee

Q. My dependent child did not receive a 1098-T from the university because financial aid (grants) was more than tuition and fees paid. Do we need to report any education information in our taxes for our child?

A. Maybe. Since scholarships exceed expenses, the excess is taxable income on the student's tax return. If the excess is less than $12,550. and that is his only income, it does not need to be reported.

But, 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.

Note that $5000 (or $6000) is still less than $12,550, so technically he still doesn't have to file. But, you may want him to file just to document the reporting of the income as taxable.