1098-T

[timmichelle]

I am reporting my daughter's 1098-t on my taxes.   She is in grad school and completed her first semester fall 2024.  She received the WICHE scholarship which was reported box 5 on the 1098-T.  We paid $8,682.25 for her tuition which was reported in box 1.

Her tuition was paid for with the combination of what we paid plus the WICHE scholarship.  We did not pocket the difference.  Why is TurboTax telling me that we need to now pay tax on the difference between box 1 and 5?

Thank you for any insight.

[Hal_Al]

You don't say how much was in box 5. Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free.  Scholarship amounts that exceed QEE is taxable income, on the student’s tax return. Room & board are not QEE.

If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will treat the difference as taxable income, unless you enter additional QEE at books and other expenses.

If you are entering the 1098-T, on your return, TT will advise  you that your student has taxable scholarship income.  It will not (and should not) enter the taxable scholarship on your tax return.

In the TT interview, you will be asked if any of the scholarship was used for room and board.  Answer yes. When asked for the amount, enter the amount you need to re-allocate to free up enough tuition to qualify for the maximum tuition credit (usually $4000) qualify for the maximum American Opportunity Credit.  Your student will need to report that much scholarship as taxable. 

For more specific advice, you'll need to provide your other numbers. 

[timmichelle]

My daughter's 1098-t box 5 amount is $10,820 which is the tuition reduction that was given through the WRGP/WICHE program for out of state students.  It did not cover her full tuition as we paid the remainder $8,682.25 which is box 1.  Neither of these two amounts paid for R&B nor any unqualified educational expenses.

I don't understand why TT is treating the difference in these two amounts as taxable.  In fact, the total of these two amounts is the total of the tuition.

(And yes, TT did advise me that my student has taxable scholarship income due to the difference.)

Thank you for your response.

[Hal_Al]

You said: "In fact, the total of these two amounts is the total of the tuition."

If that's true, the school did the1098-T wrong.  The way it should have been done: that total should have been in box 1. 

Q I don't understand why TT is treating the difference in these two amounts as taxable? 

A. TT did it correctly. But the base info was wrong.  

That said, wrong 1098-T info is such a common mistake, TT is programed for it.

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. 

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.