1098T question

[renee7777]

My daughter is 19, a full time student and her 1098t says $6033 under box 1 and $7472 under box 2

of that $7472, her pell grant is $1973

subtracting the boxes = $1439

she did not receive any refund from her scholarship and pell grant

what she had left over after fees and such was $1973  (which is the amount given to her by pell grant)

$1485 went towards a mandatory meal plan and the remaining $488 went towards books....(she still had to pay around $50 out of pocket for the books)

MY QUESTION:   does the mandatory $1485 meal plan get taxed as income?

I have searched high n low and I do not know if this is taxed 

and if it makes a difference, she has zero income, is just a FT student, stays on campus but comes home on weekends and holidays and yes i am filing her on my taxes this year 

[Hal_Al · Accepted solution]

Q.  Does the mandatory $1485 meal plan get taxed as income?

A. Yes, but not exactly. 

Taxable scholarship, including Pell grants, is the amount of the scholarship that exceeds qualified educational expenses (QEE-tuition, fees and undergraduate course materials). Technically, her taxable amount is $901 (7472 - 6033 -488 -50 = 901). If she needed to buy a computer, it can be reduced further.  For tax purposes, there is no distinction between Pell money and other scholarship $.

if you dependent had no other income and her grants do not exceed her QEE by more than $12,950, she does not need to file a tax return. 

But, wait there's more.

There is a tax “loop hole” available. 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 school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $7472 in box 5 of the 1098-T and $6033 in box 1. At first glance he/she has $1439 of taxable income and nobody can claim the American opportunity credit. But if she reports $5439 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 $533 in expenses for those course materials, paid out of pocket, she would only need to report $4906 of taxable scholarship income, instead of $5439.

The AOC is worth up to $2500, of which $1000 is refundable. 

[renee7777]

the way i understand the pell grant is that it is to be used for qualifying expenses...books, tuition, etc ...so it doesn't seem as thought i could claim this credit

and I do not know the itemized bill for her schooling....she received a presidential scholoarship which pays for everything 100%, so I'm sure that those funds are earmarked towards her fees making me getting the credit a no as well

so, what i'm getting from this is that the $1485 will be taxed as income?

[Hal_Al]

Q. what i'm getting from this is that the $1485 will be taxed as income?

A. No. $901 is taxed as income, on the first pass.

Q. the way i understand the pell grant is that it is to be used for qualifying expenses...books, tuition, etc ...so it doesn't seem as thought i could claim this credit?

A. No. Pell grants are not restricted. "Under current law, a student may choose whether to allocate his Pell Grant (and many other scholarships) to tuition, fees, and course related materials or to living expenses when filing a tax return" (Reference: https://www.irs.gov/pub/irs-utl/Pell%20AOTC%204%20pager.pdf)

 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".

So, she could claim $1973 as income and you could claim a reduced credit. If my math is correct, 1973 - 901 = $1072 is the amount the credit would be based on.  The credit is 100% of the first $2000, so the credit would be $1072.  The AOC is limited to being claimed 4 times and can only be claimed by undergrad students. Some parents might save claiming it for later years to get $2500 instead. 

[renee7777]

thank you

[renee7777]

Hey, i just have one more question

Her pell grant was $1973 and she reports that as income on HER tax return (remember I still am claiming her as a dependent),

is there a particular spot on her return that I put the $1973 income?...its not a w2 and putting it under other income seems to mean self employment, I'm sorry i just don't see where to add her income on her return

oh, and since i am using her 1098t on MY tax return, do I also add it to HER return? seems like a double whanmmy

but also on mine, I listed her expenses when it called for it, which reduced her taxable to $901

7472-6033-488-50=901

so does she use 1973 pell grant total on hers as income or the 901?

[Hal_Al]

Q. So does she use 1973 pell grant total on hers as income or the 901?

A. $901

Q. Is there a particular spot on her return that I put the $901 income?

A. It goes on line 8r of Schedule 1. This spot is new for2022.

Q. Since i am using her 1098t on MY tax return, do I also add it to HER return?

A. Yes, that is the proper way to enter scholarship income and get it to  line 8r of Schedule 1. But, you modify it to avoid the "double whammy".  Since you have already calculated the taxable amount, enter the 1098-T with 0 in box 1 and $901 in box 5. Don't enter any other numbers. 

But, none of that is necessary.  Earlier you said "she has zero (other) income".  If you dependent had no other income and the taxable amount of her scholarship is less than $12,950, she does not need to file a tax return.