1098-T numbers do not match current amount paid to College

[Bokaryrh]

My son's 2023 1098-T form from college:

box 1 - $51,908.

box 5 - $63,487.

box 5 total (scholarships for 3 terms)  (winter=$20, 089 + spring=$20,089 + fall=$23309)

(2 out of pocket payments) = $9,918.52 (spring $4864 + fall $5054.52)

fed direct unsub loans = (winter$1814+spring$1815)

His student account shows Detail of current Payments Received = $77,034.52.

Winter payment Jan 2023

$1,814.00 loan

$20,089.00 scholarship

$21,903.00

Spring payment March 2023

$4,864.00 out of pocket

$1,815.00 loan

$20,089.00 scholarship

$26,768.00

Fall Payments August 2023

$5,054.52 out of pocket

$23,309.00  scholarship

$28,363.52

I really need to know what to do with all this on my taxes. Why do box 1 and what was paid not equal? He also doesn't have much expense other than a few books. Out of pocket was paid after loans and scholarships were applied.

[KrisD15]

Is this the student's first year? 

If not, you might look at the 1098-T from tax year 2022 and see if the Winter 2023 was billed December 2022 and included in Box 1 of the 2022 1098-T.

If it is, and it was paid in 2023, you can adjust the 1098-T to reflect that correction, however that might mean that the 2022 1098-T would need correcting as well. 

If you are claiming the American Opportunity Tax Credit, that credit maxes out with 4,000 expenses. 

If you received that credit for tax year 2022 and need to adjust the expenses (to move them to tax year 2023) if the adjustment results in you still having 4,000 in expenses to apply to the credit for 2022, there would be no need to amend the 2022 return. 

Use the "What if this is not what I paid?" link under Box 1 on the 1098-T entry screen to adjust if necessary. 

(Schools had been reporting what was billed, but they need to report what was paid. This changed back in 2017 but some schools still do not get it right) 

[Bokaryrh]

It is his second year in college. I went back and looked at 1098-T from tax year 2022 and Winter 2023 was billed nov 2022 and the only amount that was paid in 2022 was an out of pocket amount of 4920. Box 1 is the total amount paid in 2022. This year 2023 the amount in box 1 is labeled Cap Limit Charges Billed but the actual amount for Current payments received is 77, 034.52. So can I adjust this amount in box 1 when entering numbers on 1098-T form? Box 1 is labeled "Payments received for qualified tuition and related expenses". Thank you for any advice with this issue.

[AmyC]

1098-T is an informational form. The program gives you plenty of space to add more fees paid, additional scholarships and deductions for supplies, room and board, etc. If your income allows you to claim the AOTC credit, you can manipulate the numbers to give you the best refund. The IRS has a great brochure that explains how scholarships and tax credits interact.

The credit and income limits:

• For the full credit, your MAGI (modified adjusted gross income) is less than $80,000 ($160,000 if you're filing jointly)
• For a reduced credit, your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you're filing jointly)
• There is no credit given if your MAGI is above $90,000 ($180,000 if you’re filing jointly)

Reference:

Qualified Education Expenses - Internal Revenue Service 

Pub 970

IRS Q & A about education credits. 

[Hal_Al]

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 (the TurboTax interview will handle this)

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 2023 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.

To claim the credit, you and/or  your student do not need to have paid "out of pocket". Expenses paid by loans counts as paid by you (it's borrowed money). There is even a loop hole available to claim the credit if scholarships paid some of the expenses.  See details below the line.

________________________________________________________________________________________

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.