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meegangif
Level 2

1098-T no W2

I'm using TurboTax Free edition. I received a total of &16,000 in scholarships in 2020, the difference between box 1 and 5 on my 1098-T is $3500, which to my understanding is unearned taxable income since it's excess scholarship (correct me if I'm wrong). This was my only income for 2020 and I don't have a W2. Do I even have to file taxes this year? And if so, how do I file taxes on TurboTax without a W2? It won't let me submit my federal taxes without a W2. 

1 Best answer

Accepted Solutions
Hal_Al
Level 15

1098-T no W2

You do not have to file taxes. Box 5 being more than box 1 by $3500 is  taxable income.

But it is not fully "unearned" income.  For purposes of calculating your standard deduction ($350 + your earned income), taxable scholarship is treated as earned income. Hence, your total income is below the $12,400 filing requirement and you are not required to file a tax return.

 

But wait. There's more. 

 

There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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 $6500 in box 1. At first glance he/she has $3500 of taxable income and nobody can claim the American opportunity credit. But if she reports $7500 as income on her return, the parents can claim $4000 of qualified expenses on their return.

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2 Replies
Hal_Al
Level 15

1098-T no W2

You do not have to file taxes. Box 5 being more than box 1 by $3500 is  taxable income.

But it is not fully "unearned" income.  For purposes of calculating your standard deduction ($350 + your earned income), taxable scholarship is treated as earned income. Hence, your total income is below the $12,400 filing requirement and you are not required to file a tax return.

 

But wait. There's more. 

 

There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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 $6500 in box 1. At first glance he/she has $3500 of taxable income and nobody can claim the American opportunity credit. But if she reports $7500 as income on her return, the parents can claim $4000 of qualified expenses on their return.

meegangif
Level 2

1098-T no W2

Thank you for your reply, this makes me feel a lot better. I will have to talk to my parents about claiming tuition credit!!

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