1098T Other Income from excess of Box 5 over Box 1 not transferring to Other Income on return

[twinzby2]

I have entered the information from 1098T which shows Box 5 higher than Box 1 which should create other income of the difference between the two.  This amount is not transferring to 1040 or the schedules as other income.  I have seen in many other posts that the amount automatically transfers over. Is this function not working properly for 2025 and do I have to enter it manually?  

Thanks.

[Hal_Al]

After entering the 1098-T, you will reach a screen that will  asked if any of the scholarship was used for room and board (R&B), answer yes. Then enter the amount you want to be taxable (usually the difference between boxes 1 and 5), in the pop up box. R&B are not "qualified educational expenses" for tax free scholarship.  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put it on line 8r of Schedule 1.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $15,750 filing requirement (2025) 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.

[Hal_Al]

 There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship (if their income isn't too high to qualify). 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, 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”.