1098-T but no income

[mpolite2]

Hello!

My dependent child just received her 1098-T form. For Box 5 it reports $5748.00 (which is more than Box 1). She has no other income to report as she has not worked. Is she required to file taxes for 2021 year with this 1098-T?

[DoninGA]

Since she is being claimed as your dependent you enter the Form 1098-t on your tax return.  She has nothing to file.

To enter, edit or delete Education Expenses -

• Click on Federal Taxes (Personal using Home and Business)
• Click on Deductions and Credits
• Click on I'll choose what I work on (if shown)
• Scroll down to Education
• On Expenses and Scholarships (Form 1098-T), click on the start or update button

Or enter education expenses in the Search box located in the upper right of the program screen. Click on Jump to education expenses

[Hal_Al]

No.  Typically, the difference between box 5 and box 1 is taxable scholarship (that amount can be reduced by the cost of books and computers). It that amount is less than $12,550, and she has no other income, she does not need to file. 

[Hal_Al]

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), 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.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.

The way you enter this in TurboTax (TT), when asked if any of the scholarship paid for room & board, in the parent’s interview, enter $6000 (in the 1st  example above).