The Turbotax education credit optimizer doesn't properly adjust the taxability of scholarships to maximize the credit.

Forum|Forum|3 years ago
February 13, 2023
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I needed to treat $850 of scholarship income as taxable in order to maximize the credit and the turbo tax credit "optimizer" isn't calculating that properly.

TurboTax Online

Hal_Al

Employee

You have to use a workaround to make that happen. After entering the 1098-T, with an amount in box 5, you will be asked how much of the scholarship was used for room & board. At that point enter the amount you want to be taxable.

If you are the parent, the student will also have to do a similar adjustment on his tax return.

scott152Author

This is my point exactly. You shouldn't have to make a workaround. The optimizer should do this for you. How do we get Intuit to fix it?

Hal_Al

Employee

Q. How do we get Intuit to fix it?

A. You don't. I have their attention and I've been unable to do it. There just too many scenarios in education.

There are three things you can do with your Qualified educational expenses (QEE):

Allocate then to scholarships (so that the scholarship remains tax free)
Use them to claim an education credit
Allocate them to the 529 distribution (1099-Q) so that it will not all be taxable

TurboTax allocates QEE, in that order, until you tell it otherwise. TurboTax allocates QEE, in that order, but it doesn't do a very good job. It's best if you have some idea of the outcome expected, when you make your entries.

I called entering the scholarship, at room & board, a "workaround". Technically it's not. That's just how you tell TT how much of the scholarship was allocated to non qualified expenses, making it taxable.