Taxable Education Expense

Forum|Forum|6 years ago
April 19, 2020
2 replies
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My college student received a 1099-MISC for $3,600 of nonemployee compensation for work that he performed during the summer of 2019. He already filed his 2019 return and paid his 2019 taxes. He also received a 1098T, about $9,700 of which was for room & board, so that portion is taxable. I thought Turbo Tax would add the $9,700 to my income for tax purposes, but it didn't. Does he need to amend his return and add the $9,700 "other income?"

Scholarships

Bsch4477

Employee

Yes, that is his income, but it is not “other income “ but scholarship income instead. Follow the interview for reporting the 1098-T.

Carl11_2

Employee

He also received a 1098T, about $9,700 of which was for room & board, so that portion is taxable.

Correct. But it's taxable income to the student, not the parent.

Since box 5 of the 1098-T exceeds box 1 of the 1098-T, you the parent will not report "ANY" education stuff on your return - but you will still claim the student as your dependent.

The student will report the 1098-T on their own return. The student will be taxed on the excess scholarship/grant funds not used for he qualified education expenses of tution, books, and lab fees. Additionally, the student will be taxed on that excess scholarship income only, at the parent's higher tax rate. So when the student calls asking for your tax information, you need to provide it to them. It's used to figure at what rate the excess scholarship money will be taxed.

Hal_Al

Employee

"Since box 5 of the 1098-T exceeds box 1 of the 1098-T, you, the parent, will not report "ANY" education stuff on your return."

Actually, there is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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.