1098-T file refund as income question

[sunbro1441]

Where do I report my left over pell grant refund money as income? Is this done automatically? I see when I add my 1098-T I have to pay more tax. Which is fine, I just want to make sure I do everything right. 

[RaifH]

Yes, if your scholarship exceeds both your tuition expenses and your other qualified education expenses, the leftover is automatically added to your taxable income on Line 1 of Form 1040. If you preview Form 1040, you should see an amount written next to line 1 "SCH" then the amount of your scholarship that you are being taxed on.

Bear in mind that unless your scholarship specifically only covers tuition and fees paid to the school, they can generally be used for other expenses like supplies, books, and room and board. 

To preview your 1040:

1. Open or continue your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. With the Tax Tools menu open, you can then view your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu
4. Scroll down until you see Form 1040 Line 1. This amount should include your excess scholarship income. 

[Hal_Al]

Q.  Do I report my left over Pell grant refund money as income? Is this done automatically?

A.  Yes. TurboTax will treat the difference between box 1 and box 5 (assuming box 5 is more) as taxable income.  But, in addition to tuition and fees, books and computers (but not room and board) are qualifying expenses for tax free treatment of scholarships.  So, be sure to enter your book and computer costs to reduce your taxable scholarship.

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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

[A Student]

Hi,

My 1098t is show excess of income by $8000 which was used towards housing, transportation etc.
box 1 - $4,000

box 5 - $12,000

My mom usually claims me as a dependent but I also worked in 2021. I am filing but selecting the that someone can also claim me.

Should my mom still keep me on her taxes?

Do the both of us report the 1098t?

Can the exceed of $8000 be used in a loophole?

As of right now turbo tax is showing at I owe almost $1000.

[Vanessa A]

If your mom is not claiming you then no she would not enter your 1098-T on her return.  Since all of your tuition was paid by scholarships, then she would not get an education credit even if she did claim you. 

There is not a loophole for the excess amount.  Your scholarship income would be considered unearned income and is taxable for the amount you did not use for tuition and eligible education expenses. 

[Hal_Al]

  Since you say you are  selecting the that someone can also claim you,  your Mom can claim the Tuition Credit (yes, she keeps you on her taxes and you both report the 1098-T). 

Yes, you can the exceed  $8000 be using the  loophole.  You report $12,000 taxable scholarship to allow Mom to claim $4000 of expenses to get an (up to) $2500* credit. 

Since you also work, owing $1000 would not be unusual (it tells me you have about  $10,000 on your W-2).

*If Mom doesn't have enough tax liability to get the full $2500; you should only report $10,000 as taxable scholarship, instead of $12,000. 

[A Student]

I only have 6,900 on my W2. When I added the 1098T to my return I owed that amount. Is it because I can be claimed as a dependent? Also, where would my mom claim the $4000 expenses in turbo tax? 

[Hal_Al]

Q. I only have 6,900 on my W2. When I added the 1098T to my return I owed that amount. Is it because I can be claimed as a dependent?

A. Yes, but not exactly.  Your age and student status are part of it.  You're affected by the "kiddie tax", wherein most of your unearned income, including some of the scholarship is taxed at the parent's marginal tax rate. See calculations on  form 8615.

Q. Also, where would my mom claim the $4000 expenses in turbo tax? 

A. Even though  you entered the 1098-T, on your return, she also enters a modified 1098-T on her return at Deductions and Credits / Educational Expenses and Scholarships.  She answers yes about getting a 1098-T, but enters it with $4000 in box 1 and box 5 blank. 

[A Student]

So, would I entry my 1098t exactly as is for box1 and box 5? Or should box 1 be empty and box 5 I have the 8000?

[Hal_Al]

Q. So, would I entry my 1098t exactly as is for box1 and box 5? Or should box 1 be empty and box 5 I have the 8000?

A. Enter the 1098-T, exactly as received, on the student's return. Enter book expenses separately.  In his interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit".*  Be sure the amount in that box is $4000. That will put all his excess scholarship as income on his return.  

Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s . The alternate workaround is  to enter $4000 less than the actual box 1  amount, when you enter the 1098-T

There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship and enter the 1098-T, on his return, with 0 in box 1 and the  taxable amount  in box 5. In that case be sure the amount in the  "Amount used to claim the tuition deduction or credit" box is 0*.

*If that screen isn't showing up, try this: Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.