Form 4852 and Scholarships more than Tuition

Forum|Forum|4 years ago
May 12, 2021
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My 18 year old daughter who is filing independently for the first time this year got more scholarship awards than tuition and fees, and so she used some for room and board. It appears there is a tax advantage for some of the excess scholarship money above tuition and fees to be declared as income because then she qualifies for an American Opportunity Credit for education. She did not receive a W-2 from the university for any of the scholarship money. Is it up to my daughter to create a substitute W-2 via form 4852 and determine the amount of scholarship money declared as income? Is there another better way to handle this situation?

Hal_Al

Employee

No, Scholarship is not entered as either a W-2 or by form 4852.

Taxable scholarship is not entered in the income section of TurboTax. Instead, it is entered in the education expenses section.

In TurboTax (TT), enter at:

Federal Taxes Tab (Personal for H&B version)

Deductions & Credits

-Scroll down to:

--Education

--Education Expenses

Enter her 1098-T. If she did not get a 1098-T, answer yes to the exception question.

That said, you daughter does not qualify for the American Opportunity Credit.

There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working (earned income). Scholarships are not earned income, for most purposes. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants. It is usually best if the parent claims that credit.

Reference: Line 7 instructions for form 8863. https://www.irs.gov/instructions/i8863

Furthermore, you daughter, almost certainly, doesn't qualify to file independently. Scholarship money is not considered self support.