1098-T Form for dependent has excess scholarship in Box 5. Unable to account for the excess.

[jaycha2]

My dependent kid's 1098-T has box 5 > Box 1. All the bright future amount was paid directly for Tuition and Fees. She had an expense (For a trip) that she got refunded as Financial aid refund ($500) after she had paid out of pocket. That leaves out @$520 dollars. 

here is the breakdown:

Box 5 - 6700 (Includes $500 refund from her expense she incurred for her trip, previously)

Box 1- 5700

I paid her summer tuition of $200 approximately..

Question: I am not sure how to account for approx : $520 that is still excess (She never "pocketed" any of the amount from Bright futures. Her earned income is below the threshold of 15000, but had some tutoring income, which is requiring her to file. Parent is not eligible to get education credit. Room and board were paid separately.

Do we need to report this in her Tax return?

Thank you so much in advance

[jaycha2]

One thing I noticed after entering that it had no impact to her taxes. It shows up in Sch 1 line 9, but does not changes are taxes she owes (She owes only for the self employment)

[Hal_Al]

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 student’s 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. Room & board are not QEE.  Trip expenses are not QEE, unless the trip was required as part of the course.

Q. One thing I noticed after entering that it had no impact to her taxes. It shows up in Sch 1 line 9, but does not changes are taxes she owes (She owes only for the self employment). Is that correct?

A. Yes. Prior to being in the total on line 9 of Schedule 1, it should be on line 8r of Schedule 1. 

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, but not more than $15,750).  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.

[jaycha2]

Quick followup: Even though she is filing tax because of her small tutoring gig, she has to now enter the 1098-T to show her taxable scholorship, correct. As it is not impacting her taxes, inspite of additional amount, she got as refund for expense she incurred,  showing up on 1098-T, will keep the filing as-is

I will let Turbo Tax handle the schedule 1 and taxable scholarship amount. Yes, it shows up on line 8r. 

THANK YOU THANK YOU!

[Hal_Al]

Q. Even though she is filing tax because of her small tutoring gig, she has to now enter the 1098-T to show her taxable scholarship, correct?

A. Yes, that is correct.

Q. As it is not impacting her taxes, in spite of additional amount, she got as refund for expense she incurred,  showing up on 1098-T, will keep the filing as-is. Correct?

A. Yes, that is correct and very common.