Taxing scholarships

You've answered something wrong in the interview. Or, as some people have reported, TurboTax is assigning $10,000 of tuition to the Lifetime Learning Credit, reducing the amount assigned to the scholarship.

Is your daughter your dependent? If so,  are you claiming a tuition credit? If so, your daughter should encounter, on her interview, a screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.  

The 1098-T is 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.  If neither is applicable, you do not need to enter 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)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2022 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

The IRS has specific conditions for a scholarship not to be taxed. A scholarship is tax-free only if:

• You are a degree-seeking candidate
• Attend a qualified educational institution
• It doesn’t exceed your qualified education expenses
• It isn’t designated for other non-qualified purposes (such as room and board)
• It doesn’t represent payment for work or services you’ve performed

Do Scholarships Count as Taxable Income?