I'll try to keep this as simple as possible.
I enrolled at Full Sail University in summer 2017. For tuition costs, I intended to use a Florida Prepaid College Plan that my parents had set up for me, as well as my mom's Post 9/11 GI Bill benefits.
So, flash forward to when I drop out. Full Sail informed me that I would have to pay $5,625 for the first semester's tuition since I dropped out past a certain date. I don't know exactly HOW they did this, or exactly WHAT Florida Prepaid and the VA sent them, but semester one's tuition was paid for.
So then, I started getting checks in the mail. One check was from Full Sail themselves. It was a check for $8,693.81. Then, I started to receive other checks from the United States Treasury office. There were three checks for $75, and one check for $507.47 -- so $732.47 total. I deposited all of the checks into my savings account.
Sometime after the checks, I received a letter from the VA stating I owed them $150 for a refund on "supplies and books fees". So, I paid them $150 over the phone and never heard from them again.
So now, I've received in the mail two forms that are confusing the absolute $#!% out of me! They are the 1098-T (from Full Sail) and 1099-Q (from Florida Prepaid) forms.
So on the 1098-T, the only boxes that are checked out are 2 (tuition costs -- $5,625), 5 (scholarships/grants -- $3,375), and 8 is checked saying I'm at least a half-time student.
On the 1099-Q, 1 (gross distribution -- $10,903.81), 2 (earnings -- $4,064.33), and 3 (basis -- $6,839.48) are filled out, and "State" is marked in box 5.
So I fill out all of the questionnaire for the forms in TurboTax (which I have to use TurboTax Deluxe apparently for the 1099-Q form), and I end up seeing a federal refund of $829... I'm sorry, what?
I totally feel like I should be owing the government money since I technically received $8,694 of extra income on top of the $6,998 I made from working my part-time job.
While filling out the questions for the 1099-Q, TurboTax asked me if "recieved a refund for qualified higher education expenses, such as tuition reimbursement for a dropped class", and I clicked "yes" because... did I not recieve a refund from Full Sail for the money they took from Florida Prepaid? I mean, the 1099-Q indicates that I had $10,903.81 total. I received $8,693.81 back from Full Sail. So Full Sail used $2,210 to pay for the $5,625 of tuition costs, which leaves $3,415 up in the air. So, why am I not being taxed for the money that I got back from Full Sail???
Perhaps what confuses me the most is that my 1098-T form indicates I received $3,375 for scholarships. I was NEVER informed by Full Sail that I had received a scholarship, although I applied for two: one that was $1,000, and one that was up to $4,000...
I am beyond confused and I don't know what to do. Should I just skip TurboTax and seek out a real life tax advisor?
You do need to be sure you understand what transpired. Perhaps speaking with the administration at Full Sail would help.
If the tuition was 5,625 and you got a scholarship for 3,375 that means they kept 2,250 of your prepaid college distribution.
You took a 10,903.81 distribution, Full Sail kept 2,250, so you need to claim 8,653.81, but the tax on that distribution is based on what was earnings, not the full distribution. It is also possible to use some of the fees towards a credit and then pay the tax on more of the distribution if it results in a higher refund or lower tax liability.
If you received 582.47 (732.47 - 150.00) from the GI Bill, that would need to be accounted for, although it would not be taxed. You would need to find out from the VA if these funds were restricted to tuition use only, or if you were allowed to use it for other living expenses.
You can still use TurboTax for your return, but you do need to be clear about who paid what. Even if you go to a Brick & Mortar accounting office, they will need to know the answers to these question.
IRS Pub has a lot of good examples about how you can report tuition, tax-free assistance and distributions to get the best results. Click the link below and read chapter 7.