1098-T question

[duckgirl1065]

We received a 1098-T due to our child receiving a scholarship from her university.  The total scholarship award was divided into 3 equal distributions that are applied to her account to go toward the cost of her tuition each term.  The 1098-T captures two of those distributions, the second of which was applied to her tuition for winter term (academic period beginning January 2025-March 2025).

On the screen where you enter the 1098-T information in TT, there are links to information about what is a qualified education expense. Somewhere in that information, I read something (which I can't seem to get back to now) that said if the scholarship is used to pay for qualified education expenses it would be tax free. 

When we enter the information from the 1098-T into TT, it indicated that our child needed to file taxes as the scholarship was taxable to her.  This was confusing to me, as I had just read that scholarships money used for qualified education expenses (tuition) is tax free.  Can you assist?      

[KrisD15]

If possible, can you furnish the numbers in Box 1 and Box 5 on the 1098-T?

It is true that if Box 1 (expenses) is equal to or more that Box 5 (scholarships), the scholarships can be allocated to the expenses and as such are tax-free

HOWEVER

if you enter Form 1098-T in your TurboTax program and continue the interview for the Education Section, you can select "Maximize My Education Tax Break"

The program may suggest the student claim some of the scholarship if doing so frees-up expenses for you to get an education credit. Usually the credit for the parent is more than the tax the student may need to claim. Additionally, if the student's income is below the filing threshold, they needn't pay any tax on that income. 

Do you know if you got an education credit?

What is the total income for the student with and without the scholarship? 

[duckgirl1065]

box 1:  $10832.14

box 5:  $1334.00

Student has no income other than the scholarship.  

After filling out all of the information, it said we were eligible for either the AOC $2,500 or the LLC $1,900. TT applied the AOC as it was higher.  

[Hal_Al]

Q. When we enter the information from the 1098-T into TT, it indicated that our child needed to file taxes as the scholarship was taxable to her. 

A. You can ignore that.

In one of the alternative calculations, where you would get $2000 Lifetime Learning Credit, she would have to report $502 (1334- 832) of the scholarship as taxable. Since the AOC was chosen, that doesn't apply.