Didn't receive 1098-T

[Prissy99]

My dependent child did not receive a 1098-T from the university because financial aid (grants) was more than tuition and fees paid.  Do we need to report any education information in our taxes for our child?  

[RaifH]

It depends. If the scholarship was used for qualified education expenses, then it would not be taxable and does not have to be reported. In addition to tuition, this would include supplies, books, and any fees that are necessary for attendance. It would not include room and board or travel. 

If you would be eligible for an education tax credit and your child has room and board expenses, you can use the scholarship money to pay for room and board. This would make that portion of the scholarship taxable, but it would free up tuition expenses that would otherwise have been paid by the scholarship. You can then apply those tuition expenses towards an education tax credit. Although you would be paying tax on the scholarship, the benefit of the education tax credit usually is greater than the tax you pay on the scholarship.

[Hal_Al]

Q. My dependent child did not receive a 1098-T from the university because financial aid (grants) was more than tuition and fees paid.  Do we need to report any education information in our taxes for our child?  

A.  Maybe. Since scholarships exceed expenses, the excess is taxable income on the student's  tax return. If the excess is less than $12,550. and that is his only income, it does not need to be reported. 

But, 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 $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.

Note that $5000 (or $6000) is still less than $12,550, so technically he still doesn't have to file.  But, you may want him to file just to document the reporting of the income as taxable. 

[Prissy99]

But, we didn't receive a 1098-T.  

[Hal_Al]

At the education interview, after you answer no to the Did you get a 1098-T question.  You will be asked if you qualify for an exception.  Check the box that you qualify.  That will allow the interview to continue so that you can enter your info.  You qualify if your school normally gives most students a 1098-T (it's an "eligible institution").

A form 1098-T was made a requirement for the education credits a couple of years ago.  However, if you qualify for an exception, you may still claim the AOC, without a 1098-T.  If you attended an eligible institution, you most likely qualify for an exception. 

 “However, a taxpayer may claim one of these education
benefits if the student doesn’t receive a Form 1098-T because
the student’s educational institution isn’t required to send a
Form 1098-T to the student under existing rules (for example, if
the student is a nonresident alien, has qualified education
expenses paid entirely with scholarships, or has qualified
education expenses paid under a formal billing arrangement). If a
student’s educational institution isn’t required to provide a Form
1098-T to the student, a taxpayer may claim one of these
education benefits without a Form 1098-T if the taxpayer
otherwise qualifies, can demonstrate that the taxpayer (or a
dependent) was enrolled at an eligible educational institution,
and can substantiate the payment of qualified tuition and related
expenses.”

Reference:  https://www.irs.gov/pub/irs-pdf/f8917.pdf

[Prissy99]

@Hal_Al 

Like you indicated, I did the interview for the exception of the 1098-T, since my child did not receive a 1098-T.  Now, I'm trying to figure out what numbers to input for tuition and scholarships/grants from the billing statement.  My understanding is BOX 5 needs to have the total of all scholarships and grants.  BOX 1 the total amount of Qualified Educational Expenses.  In our case, BOX 5 is more than BOX 1.

My child received 2 grants. 

One grant completely covered his undergraduate tuition. 

The other grant is a lesser amount and was applied to the remaining balance of the statement which includes fees, housing, and meal plan.  This second grant did not cover the complete bill.  We had to pay the remainder out of pocket. (I don't know the terms of the grants received.)

In regards to the scenario you gave:  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.

(From where did you get $6,000 as income from this scenario?)

I hope you are able to understand my questions and provide answers.  I'm really trying to do what's right and I find this not easy to understand.

Thank you in advance.

[Hal_Al]

Q. From where did you get $6,000 as income from this scenario?

A. $4000 is the maximum amount of tuition needed to claim the maximum AOTC ($2500).

Since the student, in the example, already had $2000 taxable scholarship, he needs add $4000 more because the parents are going to use $4000 to claim the credit.  He can no longer claim that that $4000 was used to pay tuition. You can't "double dip". That is you can't say you paid $4000 of tuition and claim the AOTC and at the same time say the tuition was paid by scholarship, so the scholarship is tax free. 

How to enter in TurboTax (simplified workaround):

On your return, just enter $4000 of tuition.  On her return, just enter $6000 of scholarship (no tuition or other expenses). When asked how much of the scholarship was used for room and board, enter $6000. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  That just the gimmick for making it taxable, without having to enter everything and making it complicated.