1098 T

[CCam12]

My son has 2 1098-T forms for 2024 (transfer student). The forms indicate: 10,991 paid to the schools and 11,018 in scholarships and grants. So I’m assuming I don’t qualify for any credits like I did in 2023. Included in the scholarships and grants there’s an 1875 scholarship and I’m confused if he needs to pay taxes on that since the numbers above are basically a wash. Thank you

[KrisD15]

First, I suggest you compare the 1098-T to the students school statement to ensure scholarships posted in 2024 were not for tuition billed in 2023. 

If those numbers are correct, no, you would not be eligible for an education credit UNLESS you had the student claim part of the scholarships and in turn used the "Freed-Up" expenses toward a credit.

The 1875 scholarship, if used for education expenses (Tuition, fees, books, supplies) is not claimed and not taxable.

The 1875 scholarship, if NOT used for education expenses (Tuition, fees, books, supplies) Must be claimed by the student as taxable income.  Whether it is taxed depends on the students other income.

There is a 27 difference between Box 1 and Box 5 which would be income for the student, unless they purchased books and/or supplies outside of the school, which I assume they did. 

Pub 970 is pretty easy to read and shows great examples. 

If you enter the 1098-T into your TurboTax program, since you claim the student, the program may suggest the best way to handle the expenses and scholarships. It MAY suggest the student claim scholarships so you get a credit.

[Hal_Al]

If the $1875 is already included in the $11,018, you don't normally need to think about  it separately, unless it has restrictions. 

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 your numbers: Student has $11,018 in box 5 of the 1098-T and $10,991 in box 1. At first glance he/she has $27 of taxable income and nobody can claim the American opportunity credit. But if she reports $4027 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 $3027 of taxable scholarship income, instead of $4027.  The parents get a $2500 credit, and the student pays $0 to $666 in tax, depending on his other income. 

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”.