1098 T for Graduate Student on Stipend

[rjabara]

My daughter is a graduate student on stipend.  She receives a 1098 T that includes Tuition paid and Grant/Scholarship distributed.  Turbotax takes the full Grant/Scholarship distribution, substracts the tax-free tuition paid, and uses the result as taxable income.  This amount of taxable income IS NOT in line with what she actually receives as a stipend, and is overstating the income by about 15%, therefore overstating the tax due.  In past years, she was advised (by the University CPA service) to just use the amount she actually received from the University as Income, and not the number presented on the 1098-T.   Does anyone have any experience with this?  

Thanks in advance

[Hal_Al]

Yes, you can do that.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception.

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2025 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

But,  that begs the question, why do you think it's overstated.  How and why would the school make such a mistake.  The more likely explanation is that the 15% is other scholarship, in addition to the stipend. 

[rjabara]

Thanks.  The only known item is the amount of money deposited into her account for the full year.  The calculation of Grant minus Tuition Paid=Income on the 1098 T (calculated by the University) does not match this number and is overstated by 15% (also pushes into higher tax bracket)

If I want to adjust it to be the actual income received, how would I do that?  The only options are to change how much I paid in Tuition (which I do not know as it is University Calculated) and Grants awarded (again calculated by the University).

This has been a known problem with these statements, but I just don't know which number to manipulate to get to the correct number.  She is not getting the Education credit.

Thanks.

[Hal_Al]

Q. If I want to adjust it to be the actual income received, how would I do that? 

A. The simple thing is enter the 1098-T with 0 in box 1 and the net reportable income in box 5.  

That said, you really haven't provided any info that indicates that the 1098-T isn't correct (you don't  know how tuition & Grants are calculated by the University, but you know the bottom line is wrong?  The 15% could have been applied to expenses rather than deposited to her account. 

[rjabara]

Thanks, this will work.   I am waiting to see if the University can explain the $7500 gap.  One guess is that they included the healthcare expenses, which I believe should be taken pre-tax and not included in income.  

Rich

[rjabara]

@Hal_Al  So I have been going back and forth with the University, AI, past PHD student experiences and the Tax Code on this, but cannot really get any clarity on the inclusion of University provided Health Insurance in taxable income.  The school says it is mandatory and students are auto-enrolled.  Because of this, many believe that this makes it QTRE and therefore not taxable (even though it is not included in Box 1 of the 1098-T).  Further, on the student account, it shows an expense for healthcare, then immediately after that a credit for the same amount, net-zero.

Would you consider this taxable income?  If so, this would mean the 1098T is incorrect and we would have to manually calculate the taxable income by reducing it by the amount of Health Insurance Premium that was not included in Box 1, overstating income by the same amount.  (Box 5 much larger than Box 1, FYI).  Thanks for any help here.

Rich

[ThomasM125]

The health insurance would not likely be considered a qualifying education expense because of its personal nature. It is similar to room and board which is not a qualifying education expense. That is likely why the university did not include it in box 1 on the Form 1098-T as qualifying tuition and related expenses. 

This excerpt from an IRS article on qualifying education expenses explicitly states that insurance and medical expenses (including student health fees) are not qualifying education expenses.

[Hal_Al]

How much other income does she have.  Taxable scholarship, up to $15,750.  does not actually get tax unless the student has other income.*

Q. Would you consider this (employer provided health care) taxable income?

A. No. But, I also wouldn't consider it Qualified Tuition and Related Expenses (QTRE).

I think the thing you should "hang your hat on" is "In past years, she was advised (by the University CPA service) to just use the amount she actually received from the University as Income, and not the number presented on the 1098-T." 

*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $15,750 filing requirement (2025) and the dependent standard deduction calculation (earned income + $450).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

Taxable scholarship goes on line 8r of Schedule 1, from which TT treats it as hybrid income.

[rjabara]

@Hal_Al  Thanks, I looked at the last 3 years of tax returns that the University CPA service (now defunded) completed and in each case they removed the Health Insurance from income.  This doesn’t necessarily make it right but certainly makes me question the regulation.  Her income (stipend/grant/scholarship etc) is well above the15k.  She doesn’t qualify for any of the Education Credits.  Anyway, thanks for your help.