My son, who we claim as a dependent, had to use some of his scholarship to pay for room and board making it taxable. We were told that both him and us should add the 1098T to our return. I did the math wrong on ours and put $800 went toward room and board but didn’t realize I was wrong until after I submitted our taxes. His taxes will have the correct number of $2,300. Do I need to file an amendment for our taxes? He does have to file since he had over $12,000 from working during the year.
Q. Do I need to file an amendment for our taxes?
A. It depends on the bottom line, on your tax return. Assuming you are eligible for the tuition credit (your income is not too high), you should have used $4000 of tuition to claim the American Opportunity credit (getting a $2500 credit, in two pieces, $1000 & $1500). If that's the bottom line, do not amend. All that entry detail is not sent to the IRS.
What your son enters does not have to agree entirely with your entries (other than the $4000, of qualified expenses, used by the parents to claim the credit on their return).
There's a simple way to enter it on his return. Manually calculate the mount of taxable scholarship and enter a 1098-T with 0 in box 1 and the taxable amount in box 5. Enter no other numbers.
The simple way to enter it on your return would have been to enter a 1098-T with $4000 in box 1 and 0 in box 5. Enter no other numbers.
Q. He does have to file since he had over $12,000 from working during the year. Correct?
A. The filing threshold is $14,600. So, it depends on how far over $12,000 he is. $12,000 wages + $2300 taxable scholarship = $14,300. Even if less, he should file, to document the use of the "loop hole" ( I assume that's why he "had to use some of his scholarship to pay for room and board".
I think you mean you reported more for qualifying education expenses then you were entitled to on your tax return. You would have to prepare an amended return to see if your tax increased when you correct the education expense entry and if so, file the amended return.
Your son would most likely have to file a return if his income was over the standard deduction, which is $14,600 in 2024 for a single filer. He could us this IRS tool to determine if he needs to file a tax return. If he is not required to file a tax return, he can still do so to get a refund of taxes withheld from his pay (box 2, 17 or 19 on his W-2 form ).
Q. Do I need to file an amendment for our taxes?
A. It depends on the bottom line, on your tax return. Assuming you are eligible for the tuition credit (your income is not too high), you should have used $4000 of tuition to claim the American Opportunity credit (getting a $2500 credit, in two pieces, $1000 & $1500). If that's the bottom line, do not amend. All that entry detail is not sent to the IRS.
What your son enters does not have to agree entirely with your entries (other than the $4000, of qualified expenses, used by the parents to claim the credit on their return).
There's a simple way to enter it on his return. Manually calculate the mount of taxable scholarship and enter a 1098-T with 0 in box 1 and the taxable amount in box 5. Enter no other numbers.
The simple way to enter it on your return would have been to enter a 1098-T with $4000 in box 1 and 0 in box 5. Enter no other numbers.
Q. He does have to file since he had over $12,000 from working during the year. Correct?
A. The filing threshold is $14,600. So, it depends on how far over $12,000 he is. $12,000 wages + $2300 taxable scholarship = $14,300. Even if less, he should file, to document the use of the "loop hole" ( I assume that's why he "had to use some of his scholarship to pay for room and board".
There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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 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 (by allocating that money to room & board and/or other expense, rather than tuition), 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.
The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit". PUB 970 even has examples of how to do the “loop hole”.
Apparently I should have asked these question prior to submitting my return…..box 1 of his form shows 3,989.40. Box 5 is $6,708. When we added this info to our taxes it said we didn’t get a credit because of the excess scholarship number (I didn’t know about the loophole). He did have an additional $360 of school required expenses. How much would my son have to take as income for us to get the credit and I can submit an amendment with the loophole and get the credit or am I out of luck at this point? Thanks so much for your insight!
Q. How much would my son have to take as income for us to get the credit?
A. $6359*.
3989 + 360 = $4349 (qualified expenses) -$4000 used by the parents = $349 can be allocated to the scholarship. $6708 - 349 = $6359 of the scholarship is allocated to non qualified expenses (e.g. room & board) and becomes taxable income to the student.
Q. Can I submit an amendment with the loophole and get the credit?
A. Yes, can and should. Wait for your first return to be fully processed before filing an amendment. Your son does not have to wait for all that to happen before he files.
*Some of it will be subject to the kiddie tax (when a kid's income is taxed at the parent's marginal rate). The family still come out way ahead, The American Opportunity Credit (AOC) is 100% of the first $2000 of qualified expenses and 25% of the 2nd $2000.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). 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. TT handles that.
Thank you so much for the information! One more question and then I will be done. He did purchase a laptop…is that something that can count towards education expenses or only money that is actually paid to the school?
A laptop counts for the AOC, no matter where you purchased it. For the lifetime learning credit, it would have to be purchased, from the school, as part of the course fees.
If the computer was $1000, does that mean he can take $1349 off the totally scholarship and lower his taxable income? Sorry…just trying to make sense of how that would look.
Q. Does that mean he can take $1349 (1000 + 349) off the taxable scholarship and lower his taxable income?
A. Yes. He allocates another $1000 ($1349 total) of qualified expenses to the scholarship, making $1349 of the scholarship tax free.
When I am filing out his form, I just put in that he paid $5359 towards room and board and then that will add it as income and allow us to get the tax credit? What is the process for filling in this section for me when I am able to submit the amendment...if I submit the same numbers, it won't give me the credit since he has more scholarship money than expenses.
Theoretically TurboTax handles all this when you just enter all the facts. One of which is to say you used some of the scholarship for room & board .
But, as you are experiencing, the result is not always what you want and expect. I strongly recommend you use the workaround shortcuts:
There's a simple way to enter it on his return. Manually calculate the mount of taxable scholarship ($5359) and enter a 1098-T with 0 in box 1 and the taxable amount in box 5. Enter no other numbers.
The simple way to enter it on your return would have been to enter a 1098-T with $4000 in box 1 and 0 in box 5. Enter no other numbers. Do this even when you do the amendment.
The 1098-Ts, you enter, are not sent to the IRS.
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That said, here's my "standard answer" for that situation.
The way you enter this in TurboTax (TT), when asked if any of the scholarship paid for room & board, in the parent’s interview, enter $6000 (in the 1st example above).
You can both use the 1098-T to enter the expenses. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your student should use the 1098-T because it makes entering scholarship income go smoother and puts the income in the right place on the tax forms, line 8r of Schedule 1 (this is a new location starting in 2022).
You essentially have to use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $4000 in box 1. No other numbers. You only enter the 1098-T to get TurboTax to check the proper box on form 8863. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. The 1098-T that you enter in TT is not sent to the IRS.
Enter the 1098-T, exactly as received, on the student's return. Enter book and computer expenses separately. In his interview, you should eventually reach a screen called "Amount used to calculate education credit" (or similar wording). Be sure the amount in that box is $4000. That will put all his excess scholarship as income on his return (line 8r of Schedule 1).
Be advised some people are saying they're not getting the "Amount used to claim the tuition credit" (or “Education Expenses used for a Tax Credit”) screen on the dependent’s interview. Check the student information work sheet (part VI, line 17) to verify it was entered. If not, the alternate workaround is to enter $4000 less than the actual box 1 amount, when you enter the 1098-T.
There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship and enter the 1098-T, on his return, with 0 in box 1 and the taxable amount in box 5. In that case the amount in the "Amount used to claim the tuition credit" box is 0 (if it comes up).
How to enter the “correct way” https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-as-a-parent-do-i-need-to-file-his-1098t/01/2875721/highlight/false#M276281
He also took dual credit his senior year and has another $1539 in expenses to that school but got no scholarship(totally forgot about that one)….i am assuming I just enter the that 1098-T as it and it has nothing to do with the taxable scholarship money?
Q. I am assuming I just enter the that 1098-T as it and it has nothing to do with the taxable scholarship money?
A. No. Do not enter that 2nd 1098-T. Again, TurboTax can theoretically handle it, but it gets messy.
The tuition for dual credit class normally cannot be used to claim the AOC. The exception is if he was officially enrolled as a degree candidate, at the college (this is unusual) and the 1098-T was issued by the college, not the high school. If so, the easy way is to just reduce the previously calculated taxable scholarship from $5359 to $3820 (5359 -1539 = 3820).
Normally, you can claim the lesser Lifetime Learning Credit (LLC) for a dual credit class. But since you are already claiming the AOC, you are not allowed to claim a 2nd education credit.
The form did actually come from the college. So I can add that in and reduce his taxable scholarship even more? Does the IRS get a copy of the 1098 - I know that you said what I put in TT doesn't go to the IRS, but do they get the a copy from the school with that information on it? Thanks again all the help...I hate figuring things out for the first time and TT isn't very helpful sometimes.
Q. The form did actually come from the college. So I can add that in and reduce his taxable scholarship even more?
A. No. Getting the 1098-T from the college is not enough (that's fairly common). You need to verify that he was a enrolled degree candidate (that's uncommon).
Q. Does the IRS get a copy of the 1098 - T?
A. Yes. But they do not try to match the numbers to what the taxpayer reports. They mostly use it to verify eligibility to claim a credit (if your college did not issue a 1098-T, your chances of hearing from the IRS go up).
My daughter received a 1098-T, with Box 1 of $16000 (tuition, room & board), and Box 5 of $7500, but due to our MAGI, we'd not be able to claim any of the AOTC on our joint return. However, my daughter is having to file her own return due to other income she made this year. Am I correct that she can claim up to $4000 on her return? If so and I claim the AOTC on her return, how do I then adjust the numbers on the 1098-T listed on my return? We are claiming her as a dependent on our return.
YES and NO.
A dependent student can claim the NON-REFUNDABLE portion of the credit ONLY if the taxpayer that could claim her doesn't.
So in other words, no one claims her, she files as a dependent and the credit can go towards her tax liability, but not as a refund.
Form 1098-T Box 1 reports ONLY tuition, not room and board.
In your situation, if the student has a tax liability, she can elect the credit by entering the 1098-T into her TurboTax program. She must select "Yes, someone else CAN claim me" BUT "No, no one else WILL claim me" in her Personal Info section
You in turn will elect to NOT claim her on your tax return.
You would delete the 1098-T from your return and add it to hers.
It's an option that is not normally advantageous, but might work for your situation if you lose nothing by not claiming her on your return.
Q. How do I then adjust the numbers on the 1098-T listed on my return?
A. Delete the 1098-T. You do not enter the 1098-T on your return, at all, since you are not eligible for the AOTC due to income being too high.
Q. Am I correct that she can claim up to $4000 on her return?
A. Yes, but only if you do not claim her as a dependent. Her other income would have to be more than $14,600, if it is from working, before the AOTC would do her any good. If she has investment or other unearned income, the filing threshold is only $1300.
While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out. A full time student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he/she supports himself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support. It is usually best if the parent claims that credit.
If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit. The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500 (AOTC shifts to all non refundable)
Note: Room and board is not properly reported in box 1 of the 1098-T. But, schools have been known to mistakenly do so. Room & board is not a qualified expense for the AOTC.