"Did Your Aid Include Amounts Not Awarded for 2024 Expenses?"

[Cecilia_17am]

I am unsure what to put for this question. In box 1 I have $7,109 and in box 5 I have $17,720. The remaining money I used for gas and groceries. 

Another question was box 7 is unchecked. I went back to my 2023 and the box is also unchecked. Does this mean the school only counts spring and fall then for that year tax year?. I've read other things online and other schools apparently don't check this box but in other cases the 2023 does include the spring 2024 charge. I checked my 2023 1098-t and it appears the school didn't count the spring 2024 charges for the 2023. 

[Hal_Al]

Q. Did Your Aid Include Amounts Not Awarded for 2024 Expenses? I am unsure what to put for this question?

A.  It usually means the Spring 2025 scholarship was posted to the 2024 1098-T, but the 2025 Tuition  wasn't.    It's a frequent problem and that's why TurboTax (TT) added the question.

Q. Box 7 is not checked. Does this mean the school only counts spring and fall then for that year tax year?.

A. Yes, that's what it usually means. But you'll have to verify that from your own records or ask your school. 

Q.  In box 1 I have $7,109 and in box 5 I have $17,720. The remaining money I used for gas and groceries. 

A. Gas and groceries and room and board are not qualified educational expenses.  That is, they can not be "2024 expenses" that a scholarship can be allocated to.

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.

At this point, the student has $10,611 ($17,720 - 7109 = 10,611) of taxable scholarship to report on his/her tax return $7,109.

[Hal_Al]

  There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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”.