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Is my logic correct on what to report as taxable for the student with full scholarship?

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March 1, 2025
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My son received a full scholarship for undergrad studies, his 1098-T box1 = $2,127.44 and box5 = $11,765.

I have withdrawn from ESA/529 plan the amount of the scholarship equal to $11,765, for which he received a 1099-Q listing basis = $5,765 and earnings = $6,000.

I am confused as to what to report where, I wonder if he will have these two taxable entries.

1) [removed].44 = 9638 (scholarship - qualified tuition, going to line 8r of Schedule1)

2) 6,000 earnings from ESA/529 withdrawal (going to line 8z of Schedule1)

how can I report this correctly in tt desktop?

Thank you.

Best answer by Hal_Al

There is a tax loop hole available where the parents of students on scholarship can still claim the education/tuition credit. Since you didn't mention the credit, I'll assume you are not eligible for the tuition credit (your income is too high) or $2127 of the scholarship is restricted to being using for tuition.

Some of your math and logic correct is correct. $9638 of the scholarship is taxable going to line 8r of Schedule1.

But the $6,000 earnings from ESA/529/QTP distribution is not fully taxable. You can allocate room and board (R&B), books and a computer to it. The net amount will go on line 8z of Schedule1. There will be no 10% penalty because of the scholarship exception. R&B count even if the student lived off campus or at home.

You may think that room & board were paid by the scholarship. But that's not how the tax accounting goes. R&B are not qualified expenses for a tax free scholarship, but they are qualified for QTP distribution.

So, assuming you had about $9638 of those other expenses; 9638 / 11765 = 81.92% of the QTP distribution is qualified. 18.03% is non qualified. $6000 x 0.1803 = $1085 taxable earnings. The scholarship exception still applies.

Q. How do you enter that in TurboTax?

A. Enter the 1099-Q first, in the 1099-Q section. Later, enter the 1098-T in the Educational expenses section and follow the interview, remembering to enter room & board, and books and a computer (if you have those expenses). In addition to entering numbers, you must complete the “Education Information” sub-section. In particular, be on the lookout for a screen “education expenses used for a tax credit”. It will usually be prepopulated (sometimes with $10K instead of the more appropriate $4K, or $2127 in your case). You can change it for the amount you want to allocate to the ed credit, including changing it to $0. If you don't get that screen, check the student information worksheet. You can change it there (line 17). Make the change in the first column.

That's theoretically how it's suppose to work. Reply back, if it doesn't work (or you would like the workaround in advance).

KrisD15

You can enter the 1099-Q and 1098-T into the dependent student's TurboTax program since there is no education credit involved. The program will determine the taxable income he might need to report.

REMEMBER a distribution from an education savings account can be used for room and board, making that amount (the amount that paid for room and board) not taxed.

Even if the student lives at home, there are room and board expenses which you can apply against the distribution. The Room and Board expense cannot be larger than what the school would charge. Contact the school to find out the amount they would charge, the average is 12,986.

There is no penalty on the distribution since the student earned a scholarship for that amount in the same year.

Also, remember that Box 1 on a 1098-T only reports tuition. There may be books and supplies that the student also paid for and those expenses count against the scholarships.

If the student has no other income and the taxable income he needs to claim (after room & board and additional expenses are taking into account) is 14,600 or less, he would not be required to file.

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Hal_AlAnswer

Employee

There is a tax loop hole available where the parents of students on scholarship can still claim the education/tuition credit. Since you didn't mention the credit, I'll assume you are not eligible for the tuition credit (your income is too high) or $2127 of the scholarship is restricted to being using for tuition.

Some of your math and logic correct is correct. $9638 of the scholarship is taxable going to line 8r of Schedule1.

But the $6,000 earnings from ESA/529/QTP distribution is not fully taxable. You can allocate room and board (R&B), books and a computer to it. The net amount will go on line 8z of Schedule1. There will be no 10% penalty because of the scholarship exception. R&B count even if the student lived off campus or at home.

You may think that room & board were paid by the scholarship. But that's not how the tax accounting goes. R&B are not qualified expenses for a tax free scholarship, but they are qualified for QTP distribution.

So, assuming you had about $9638 of those other expenses; 9638 / 11765 = 81.92% of the QTP distribution is qualified. 18.03% is non qualified. $6000 x 0.1803 = $1085 taxable earnings. The scholarship exception still applies.

Q. How do you enter that in TurboTax?

A. Enter the 1099-Q first, in the 1099-Q section. Later, enter the 1098-T in the Educational expenses section and follow the interview, remembering to enter room & board, and books and a computer (if you have those expenses). In addition to entering numbers, you must complete the “Education Information” sub-section. In particular, be on the lookout for a screen “education expenses used for a tax credit”. It will usually be prepopulated (sometimes with $10K instead of the more appropriate $4K, or $2127 in your case). You can change it for the amount you want to allocate to the ed credit, including changing it to $0. If you don't get that screen, check the student information worksheet. You can change it there (line 17). Make the change in the first column.

That's theoretically how it's suppose to work. Reply back, if it doesn't work (or you would like the workaround in advance).

F

f_comm_ttAuthor

This is really helpful. Thank you so much! Your answer is spot on regarding the concern about whether R&B will qualify for QTP distribution after receiving the scholarship. Thanks again!