TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

Forum|Forum|5 years ago
February 6, 2021
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Basics.

Tuition and room/board= $79k

Scholarship/financial aid=$20k

Out of pocket paid to school=$59k ($18k of which came from 529).

TurboTax says: "XXX's education assistance counts as income ... they exceed education expenses"

But they obviously don't. Any thoughts?

Best answer by Hal_Al

Of course it's not taxable. There's an error in TurboTax (TT). You have two choices: go thru the interview again and find the error(s) or delete the student and start over.

In the interview, you will be asked if any of the scholarship was used for room and board. Any number you enter at that box will be treated as taxable

If you know what the projected outcome is, I recommend short cuts in the TT education interview. I assume, you know that none of your 529 distribution is taxable because it all went for qualified expenses. You know that none of your daughter's scholarship is taxable because it all went for qualified expenses. You know whether you are eligible for a Tuition credit.

Just don't enter the1099-Q, because it all went for qualified expenses.

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."

In claiming the tuition credit, just enter the 1098-T and don't bother entering any other numbers. They won't change anything.

Hal_Al

Employee

You cannot lump tuition and room and board together as college expenses. Break them out separately:

Tuition & fees
Room and board
Books & course materials
computers

What is in box 1 and box 5 of the 1098-T?

Scholarships that pay for room and board are taxable. Scholarships that pay for qualified educational expenses (QEE)(tuition, fees, books and course materials) are tax free. Room & board and computers are qualified expenses for a 529 distribution.

If you are eligible, you also want to designate some expenses for claiming a tuition credit. Is your student an undergrad or grad student?

That said, you have probably entered things wrong. The interview is complicated.

Anonymous

The 1 and 5 boxes are $59k and $20k respectively. I don't see any way that $20k is taxable to my daughter.

Hal_AlAnswer

Employee

Of course it's not taxable. There's an error in TurboTax (TT). You have two choices: go thru the interview again and find the error(s) or delete the student and start over.

In the interview, you will be asked if any of the scholarship was used for room and board. Any number you enter at that box will be treated as taxable

Just don't enter the1099-Q, because it all went for qualified expenses.

In claiming the tuition credit, just enter the 1098-T and don't bother entering any other numbers. They won't change anything.