Box 1 1098-T Undervalued

[rob135]

Tuition for one semester at my university is $21,000. Adding on related expenses brings the semester total to $21,623.00. I was billed for that amount in December 2020. 

My 2021 1098-T Box 1 shows payments received = 107.50. Box 5 shows scholarship/grant total of $21,622.50.

The scholarship/grant portion is is made up of mainly tuition remission, with a small loan, a small scholarship, and a small grant.

When I enter this information into turbo tax, turbo tax is treating the excess (21,623 - 108) has earned income and making it so that I owe a lot of taxes.

A turbo tax expert has stated that Box 1 is incorrect and I need to get in touch with my school. I got in touch with the manager of financial services at my school who walked through all of the boxes on my account with me and triple checked that box 1 is correct. The manager of financial services at my school told me just to not file the 1098-T if it does not work in my favor. What do I do? It seems that box 1 is wrong since the school obviously received more than $108, but the manager of financial services insists that everything is correct and I should just not file if it does not work in my favor. Any help is appreciated!

[Hal_Al]

The manager of financial services at your school is correct, just don't file the 1098-T, if it doesn't affect your tax return. 

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. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2021 expenses".

[rob135]

Hi Hal! Quick follow-up question for you. And thanks very much for your help.

When you said "just don't file the 1098-T, if it doesn't affect your tax return. " Im a little confused because in my case, the 1098-T does affect my tax return, just in a negative way. Since box 5 is greater than box 1, it increases my tax burden from net 500 to needing to pay 2,000. And I've often seen online that if box 5 is greater than box 1 it needs to be filed and treated as income. Were the things that I read just outdated?
Again, thanks so much for your help @Hal_Al 

[ThomasM125]

You should enter the actual tuition paid during 2021 if it differs from what is reported on the form 1098. You will see an option for this below the box 1 entry for 1098-T in TurboTax by clicking on the highlighted link that says What if this is not what was paid for to this school?

[Hal_Al]

 Just don't file the 1098-T, if  the facts doesn't affect your tax return. You're not bound by the numbers on an erroneous 1098-T. 

If the correct numbers do affect your return, then you need to adjust the 1098-t when you enter it with the tools TurboTax provides.  Or, for simplicity, just enter the correct numbers when you enter the 1098-T.  What you enter is not sent to the IRS. 

[rob135]

@Hal_Al Thanks for the information. Though, what if its the case that it is not an erroneous 1098-T and is in fact correct as the school employee claims? Would it still be okay to not report it and pay tax on it?

[Hal_Al]

You have to decide if the 1098-T is correct.  You original question sounded like the 2021 box 5 amount was for the 2020 box 1 amount, so you treat the scholarship as not being for 2021. 

How did you claim the 2020 1098-T, which I assume had $21,000+/- in box 1?

[rob135]

@Hal_Al  My apologies for making it sound that way.

The 2020 box 1 was about 45k and the 2020 box 5 was also about 45k. It was not claimed because it would not have made a big difference on my taxes. But it makes sense that the payments received matched the scholarships because I had school pretty much completely taken care of.

The 2021 box 1 is only $107.50 and the 2021 box 5 is about 23k (not 45k like it was in 2020 since I graduated mid 2021. Only had to pay 1 semester worth of tuition in 2021).

My school insists that box 1 is correct, but some of the turbo tax experts that I've chatted with within turbo tax have told me there is no way the payments received by my school were only $107.50 for 2021 and that the school must be wrong.

I guess it is ultimately up to me to decide who is right and who is not, but I'd like your opinion too. And what would I do in each scenario? Thanks for all of your help once again!

[Hal_Al]

Scholarships are tax free if they pay for qualified expenses  (tuition, fees, books and other required course materials).  Scholarship the pay for room and board are taxable.  The usual explanation for box 5 being more than box 1 is that the extra money was for R&B.  So, what did the $23K pay for? That decides if you have anything to report on your tax return.

[rob135]

The 23k payed for Tuition and related fees. No Room and Board.

Though, according to box 1, only 100 went towards tuition and related expenses which is why I am confused @Hal_Al .

[Hal_Al]

Sounds like the 1099-T is erroneous. You have your answer:  You file your tax return based on your own financial records, not the 1098-T.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.

[rjs]

The issue seems to be how to treat the "tuition remission" (in other words, tuition reduction) on the 1098-T. The $23,000 is a tuition reduction. My understanding of the IRS instructions for Form 1098-T is that a tuition reduction is not a scholarship, and should not be included in box 5. It's not a payment received from a third party.

Chapter 1 of IRS Publication 970 has a long discussion of tuition reductions. Whether the tuition reduction is taxable income depends on whether it is payment for teaching, research, or other services, and whether the student is an undergraduate or a graduate student, among other factors. But in all cases, if the tuition reduction is taxable it's supposed to be reported as wages on a W-2, not as a scholarship in 1098-T box 5.

So my conclusion is that it's box 5 that's wrong, not box 1. The university really did receive payments of only $107.50. But there was no $23,000 scholarship. The $23,000 didn't pay for anything, because there was no $23,000 payment. It was a price reduction, not a payment. But if I'm right, it doesn't change Hal_Al's recommendation to report the correct amounts and ignore the incorrect 1098-T.

I will add that Hal_Al knows a lot more about tax benefits for education than I do, so if he disagrees with my conclusion I defer to him.

[Hal_Al]

@rjs  Thanks for the clarification.  I failed to pick up on the nuance that this was tuition remission.  That confirms, in my mind, that the 1098-T is in error and can be ignored.  It is a common error for schools to misreport turion remission on the 1098-T. 

[rob135]

@Hal_Al @rjs 

Thank you both for the insight. So just to clarify, whether the 1098-T is correct or not, I have no need to file it and pay taxes on it? If I don't need to file it and pay taxes in either case then I wont bother.

I just want to make sure this is the case because when I enter it Turbo Tax wants me to pay 2,000 dollars.

I'm not really interested in claiming any credits or deductions to reduce my taxes, just searching for the simplest way to complete my tax return. I'm also not positive on what numbers I would enter (if I need to file it) in the case that the 1098-T is indeed incorrect.

[Hal_Al]

Q. So just to clarify, whether the 1098-T is correct or not, I have no need to file it and pay taxes on it?

I'm afraid you can't ask the question that way.   YOU have to decide whether the 1098-T is correct.  From everything you described, I am convinced it is incorrect and I think @rjs is of the same opinion.  You do not need to report that 1098-T or the numbers on it. 

We see numerous cases of erroneous 1098-Ts, in this forum, and the school almost always refuses to correct them.