Does the student attach a copy of 1098-T when filing paper 1040-EZ to report line 1 of taxable scholarships or just type SCH and amount next to line 1 as there is no W-2?

[TaxedStudent]

Dependent student has taxable scholarship. No scholarships earmarked but were used for room and board, medical insurance, health services center, and/or transportation. Box 5 is greater than Box 2. Parent will also file 8863 for same college as there are SELF PAY books and supplies. Do both parent and student attach 1098-T copy to paper returns? Parent also files 8863 but just puts book expenses and supplies as qualified expenses on 8863 right not dependent student's taxable scholarships?

[KrisD]

You do not need to attach the 1098-T.

The parent first reports the 1098-T and all expenses. if you have additional expenses than what is reported on the 1098-T you can apply those expenses to the scholarship, making the students taxable income less, or take the credit. That option is up to you.

Also check the students school account records to be sure that you are getting full credit for what was paid to the school. Often schools bill in December for classes that start the next year. If the school bills in one year, but the scholarship posts the next year, the 1098-T will erroneously make it look as if you received more scholarship than expense. 

After you, the parent, report the 1098-T and all expenses, the TurboTax program will tell you how much to report on the student's return and how to do that.

The Form 8863 will be part of the parents return only. The 1098-T is not attached to the return, but should be kept with your tax file.

To report the scholarship as income on the student's return, please follow the instructions below. The income will be reported as earned income on 1040 line 7 or 1040A line 7 or 1040EZ line 1.

Sign into your account

Take me to my return

Pick up where I left off

Click open the search box

Type   education expenses   into the search box

Click "Jump to education expenses"

OR

Click Federal Taxes 

Click Deductions & Credits

Scroll down to "Education"   Show more

"Expenses and Scholarships (Form 1098-T)"   Start

NEXT

You will need to walk through interview screens.

Answer "No" to getting a 1098-T since the student does not report this form.

Do not report any payments billed or paid.

When you get to the screen that asks "Did You Receive a Scholarship or Grant...?" Answer "Yes" and a drop down will open.

Enter the amount.

(see screen shots below)

The amount of the scholarship will be added to line 7 with a SCH note.

[TaxedStudent]

Turbo Tax added to the dependent student that she will need to file a 1040A with form 8615. I thought taxable scholarships were classified as "earned" income per Publication 970 Tax Benefits For Education and that you simply enter SCH (taxable scholarship amount) to the left of line 1 on 1040EZ or line 7 of 1040A. Form 8615 is for parents who claim kiddie tax like income with interest and dividends I thought? Dependent student has none of this. Turbo Tax is calling these taxable scholarships from Box 5 minus Box 2 excess as "unearned" income. Contradicts Publication 970.

[KrisD]

Yes, it should be reported on line 7. I will need to mock up a return to see what the program does. Did you get a screen that said "How To Enter Taxable Education Assistance" on the parents account? I will post the screen in the answer.

[KrisD]

Here are the instructions I found. It does say that it will be reported on line 7.
 To add your taxable scholarship information to your tax return, please follow these steps:

Select  Federal Taxes

Select  Deductions & Credits

Select  Education

Select  Expenses and Scholarships

You will next add yourself as the student and go through a few screens. Answer "No" for the 1098-T question, since you did not receive this form. Go through several more screens, until you see "Did you receive a scholarship or grant in 2014?" Enter Yes and the amount in the boxes below. You will also need to answer if you had to work to receive the scholarship or if you used the scholarship to pay for room and board. If you answer Yes to one or both of those questions, the amount will be added to line 7 with a SCH note.

[KrisD]

I followed the instructions above and the scholarship amount I entered was reported on the correct line on the student's return.