problem with reporting a college scholarship

Forum|Forum|3 years ago
March 27, 2023
1 reply
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I can't figure out if I did something wrong or if there is a problem with TurboTax. My daughter attended her first semester of college in 2022. In rounded numbers:

$30,000 tuition plus all other expenses

-$8,000 scholarship from the college

-$2,000 loan

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$20,000 what we owed and paid from a 529 by withdrawing it to our account and paying the school. We/she never saw or touched the scholarship - the college just reduced what she owed by that much.

But TurboTax says that since the amount we withdrew from the 529 plus the scholarship is greater than what we paid the college, our daughter should report the scholarship as income. Except that the scholarship was applied to the total amount, not the $20k we owed.

I tried going back to where I entered the 1098-T and checked the box that said the amount in Box 1 was incorrect and entered the total amount paid to the college from all sources, as directed, but that didn't solve the problem. What am I (or TurboTax) doing wrong?

TurboTax Premier Online

Hal_Al

Employee

Q. What am I (or TurboTax) doing wrong?

A. TurboTax (TT) is allocating $10K of tuition for the education credit, even if you're not claiming it. And the interview is just complicated.

You can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip!

The 1099-Q is only an informational document. On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

The 1098-T is also 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. You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.

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)