I received financial aid for school by filling out a FAFSA and received a 1098-t form but no other forms this year other than a 1095-B for health care. I am currently unemployed, I am NOT earning unemployed benefits, and I am working towards a degree. Some of my aid was from Pell Grants and some from State Need Grants. Some of the money was taken directly by the school and used towards my tuition and the rest (each quarter) was disbursed to me as a refund amount via checks issued by my school. Does my 1098-t reflect all of the grant money I was given? Or is it showing only the amount taken and put towards tuition? Only box 1 and 5 are filled out. Is box 5 subtracted from box 1? Or are they both combined the amount of money I have received total? I am not sure if the amount of money I received as a disbursement has been calculated into the 1098-t or if I have to manually add that up and include it as income. Since my financial aid went through the school's financial aid office are they aware of the money I received as a disbursement? Would they have included the leftover amount on my tax form? The amounts on my 1098-t don't make sense.
State Need Grants, sometimes referred to as gift grants or free financial aid, is not taxable and do not have to be reported on your tax return. Any portion of your Pell Grant that is not spent on qualified education expenses (tuition, fees, books, supplies, and equipment) required for your courses must be reported as income on your tax return.
So let's say your tuition is $2,000 and your qualified education expenses were $600.00, and you have received a Pell Grant of $3,000. Therefore, $400 ($3,000 - $2,600) of the grant is taxable, and should be reported as income on Line 1 of the Form 1040.
The Form 1098-T Box 1 will reflect the total amount of tuition that was paid. If Box 1 and 5 have the same amount it means that none of the grant is taxable.
If Box 5 exceeds Box 1 it indicates that you will do the math to subtract the difference and report it on your tax return.
If Box 5 is less than Box 1 then it means that you may qualify for an education credit.
Please note, that if you received unemployment compensation and have a difference in your Pell Grant to report, then you may not be required to file a tax return if your total income does not exceed the filing status threshold of $12,000 for a Single individual. Please refer to the Form 1040 Instruction Booklet page 10 for further information regarding the dollar limitations for each filing status.
If you are required to file, TurboTax program will walk you through the preparation of your tax return, and will guide you on how to claim any educational credits that you may be entitled to.
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