If box 5 is bigger than box 1, you will need to include the form and determine how to move the money about.
Moving forward, you have two options for how to handle this income.
- Most people subtract box 1 from box 5 and enter the difference as income.
- The other method is to actually increase your income and tax liability a little but dramatically increase your education credit.
-
Per IRS Pub 970, just two conditions for choosing this option exist:
"[A] scholarship or fellowship grant isn't treated as tax free to the extent the student includes it in gross income and either of the following is true.
• The scholarship or fellowship grant (or any part of it)
must be applied (by its terms) to expenses ... other than qualified education expenses as defined in Qualified education expenses in chapter 1.
• The scholarship or fellowship grant (or any part of it)
may be applied (by its terms) to expenses (such as
room and board) other than qualified education expenses as defined in Qualified education expenses in
chapter 1" (emphasis in original).
So, method 2 is to claim that some of that box 5 money went to room and board. The excess of box 1 minus box 5 plus the "applied to other expenses" will become taxable income. The program will do the math.
This brings your tuition and qualified expenses to MORE than the help you received FOR tuition. You now qualify for the education credits. Provided you qualify- see rules below.
Now, the question becomes, how much do you say was for other expenses? Pick a big number, that you can back up, like $10,000 for room and board. See what happens. Play with the numbers and stick with the ones that give you the best refund. Yes, the IRS actually recommends this method of madness.
If you don't qualify for credits, stick with option 1.
Please see:
What are examples of education expenses?
What are qualified education expenses for the American Opportunity and Lifetime Learning credits?
Why is my scholarship taxable?
Who is eligible to take the American Opportunity Tax Credit?
What education tax credits are available?
If a parent claims me as a dependent, can I claim the education tax credit?
As for amending the return, follow the directions below.
Once your original return is accepted and the finances are settled, you can file an amended return.
- Save a copy of the original return before doing an amended return. See:
- Pay additional tax. Taxpayers who will owe more tax should file Form 1040-X and pay the tax as soon as possible to avoid penalties and interest. They should consider using IRS Direct Pay to pay any tax directly from a checking or savings account for free.
- Track amended return status online. Taxpayers can track the status of their amended tax return in English and Spanish using Where’s My Amended Return? Amended returns take up to 16 weeks to process and up to three weeks from the date of mailing to show up in the system.
@jandtax
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