1098-T question

[curlymomma]

We claim our son as a dependent on our tax return and he files his own taxes. His college didn't calculate his scholarships correctly. They will not reissue the 1098 and told me I can use my own calculation by adding up the scholarships from his bills. I did this and included all scholarships and TAP that he received (in NYS).

My question is based on my calculations since the 1098-T is incorrect, if Box 1 of his 1098-T is $9,711 and Box 5 is $8,398.26 but includes scholarships for $7,500 that can only be used for non-tuition expenses (but can be used for fees & books) and another is earmarked just for housing. So, a majority of the scholarships cannot be used for qualified expenses. Since Box 5 is less than Box 1, does he need to claim any of the scholarship money as income? If so, can he subtract the fees ($2,641.50) since they are a qualified expense, bringing the taxable income down to $4,858.50 for his taxes? 

For the AOTC Credit on my taxes, I entered $9,711 for qualified tuition and expenses, $700 for books, and $8,398.26 for scholarships. This gave me a $2,000 credit. I'm hoping I entered this correctly?

[Hal_Al]

Your numbers need clarifying.

"another is earmarked just for housing"

Then that's taxable. How much? Already in the $8398?

Where does $4858 come from? 

$2642 Fees? already in the $9711?

Does he have any other income?  As long as his total income is less than $14,600. Then it doesn't matter how much of his scholarship is taxable.  You should claim the full $4000 of tuition for the AOTC.  

[curlymomma]

Thank you for your response. Here’s the breakdown of scholarships: $6,000 non-tuition but can can be used for fees/books

$1,000 housing award

$500 non-tuition scholarship

$250 NYS Merit Excellence award $648.26 NYS TAP

For tuition and fees breakdown is:

$7,070 tuition

$2,642 fees

The $4,858 figure I got from subtracting the fees, NYS Merit, and NYS TAP from his total scholarships 

($8.398.26-2,642-$250-$648.26). My reasoning is that the NYS Merit and NYS TAP could be used to pay for qualified expenses. The $4,858 is what my son would claim as income on his taxes.

But from reading your message, since he didn’t make over $14,600 then he shouldn’t file at all? My only concern is he made $9,627 in income from a job. Do I need to add the income from the scholarships to determine if he needs to file or is this $14,600 threshold purely income from a w-2? 

When you say to claim the full $4000 for the AOTC credit, would I do that by putting $4,000 for qualified expenses and $0 for scholarships? 

Thanks for your  help! 

[Hal_Al]

Q. Do I need to add the income from the scholarships to determine if he needs to file? 

A. Yes.

Q. When you say to claim the full $4000 for the AOTC credit, would I do that by putting $4,000 for qualified expenses and $0 for scholarships? 

A.  Yes, on your (the parent's) return.

From IRS Publication 970: A scholarship or fellowship grant is tax free only to the
extent:
• It doesn't exceed your qualified education expenses;
• It isn't designated or earmarked for other purposes
(such as room and board), and doesn't require (by its
terms) that it can't be used for qualified education expenses

So, the $4858 sounds about right. So the student has $4858 of taxable scholarship.  $8398 - 4858 = 3540 allocated to tuition.  9711 - 3540 - 2642 -700 = $2829  of expenses to claim the AOTC. You need $4000- 2829 = 1171 more expenses. So, the student increases his taxable amount tp 4858 + 1171 = $6029

How does the student report his $6029 of taxable income?  The easiest way is to enter a 1098-T with 0 in box 1 and the calculated taxable amount ($6029) in box 5. 

But  9627 (W-2) + 4858 = $14,485 and that's less than $14,600. So he doesn't have to file. Adding $1171 means he does have to file.  At $2829 of expenses, you get $2207 AOTC. Having him file gets your $2500, but he pays $100-$200 depending on your tax rate (the kiddie tax applies)

[curlymomma]

Thank you for your response. I'm clear on everything except how you're figuring the qualified expenses if you can help me with that part.

$9,711 is what was paid for tuition and fees, subtract $3,540 for fees and part of tuition paid with scholarships and this equals $6,171 in qualified expenses. You also subtracted $2,642 which is for fees and part of the $3,540 number (that part confused me, I'm hoping you can explain it to me).  $700 was also subtracted which is for textbooks and I thought a qualified expense. So, I can add that to the $6,171 and have $6, 871 in qualified expenses. If this is correct, then I have met the $4,000 criteria for the AOTC and would put $4,000 in box 1 and 0 for box 5? 

Please help me understand your reasoning as I must be missing something. I always do my own taxes and this has been testing me!

[Hal_Al]

If you're confident with your math, use it.  My numbers were my understanding of the confusing  info you provided.  The explanation, most likely is, my understanding of them is  wrong.