Why is my daughters scholarship as income while she is still in school? Did I do something wrong.

Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free.  Scholarship amounts that exceed QEE is taxable income, on the students tax return.

If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will treat the difference as taxable income, unless you enter additional QEE at books and other expenses.

If you are entering the 1098-T, on your return, TT will advise  you that your student has taxable scholarship income.  It will not (and should not) enter the taxable scholarship on your tax return. 

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.

Your scholarship may be taxable if it was used on Room and Board or other "non qualified education expenses."

Here is a link that will explain more details:  Why is my Scholarship Taxable?

Please note that the Scholarships are taxable in the year they were received, so if you received the scholarship in 2019, but didn't pay qualified expenses, such as tuition until 2020, your scholarship will be taxable in 2019.

Here is a link to IRS additional information from Publication 970:  Publication 970