Form 1098-T Box 5 exceeds Box 1 (other boxes empty). This difference was taxed, but I used some of it for education expenses (required for school) - do I provide proof?

[MaryM428]

You will not need to provide proof to the IRS unless they contact you and ask for proof.  Adjust your numbers on your return so that you are being taxed only on the amount that exceeds your qualified expenses.   Use your financial records and keep those records in case you need to provide any proof to the IRS.

Where do I enter Form 1098-T?

[obsessedrama]

Hi,

Thank you for the information! 

So is it correct that enrollment fees I paid for this semester (started Jan. 2021) can be listed as qualified education expense and adjusted before I file the difference between Box 5 and Box 1 on my federal tax? 

[Hal_Al]

Q. So is it correct that enrollment fees I paid for this semester (started Jan. 2021) can be listed as qualified education expense?

A. Yes, but only if you paid it in 2020.

[obsessedrama]

Thank you for clarifying!

So just to make sure.. If on my 1098-T, box 1 = 6,000, box 5 = 10,000, my taxable scholarship income is 4000 (as generated through turbotax).

However, as I have qualified education expenses (amount "x"), I will adjust my taxable income amount as (4000-x) in the system? 

Hope this made sense.. thank you!

[Hal_Al]

Yes. But, you will not find a place to literally adjust the $4000. You have to enter the additional "qualified education expenses " at the appropriate screens.  As you go thru the interview, you will be asked to enter tuition and fees not shown on the 1098-T. You will be asked if you have book expenses. Answer yes. At the next screen, you can enter books, computers and other  course materials.

Or, if you have already totaled your other expenses, you can just add them at the 1098-T screen.  In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1 and enter your new total there (the box 1 amount + "x")

[Hal_Al]

One more thing.

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 $6000 in box 1. At first glance he/she has $4000 of taxable income and nobody can claim the American opportunity credit. But if she reports $8000 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 $7000 of taxable scholarship income. 

[obsessedrama]

Hi! 

Ah okay. Thank you for this!

I actually don't think I'm eligible for AOC or LLC..! And I'm not being claimed as a dependent.

But I'll look for the appropriate screen to input my qualified education expenses!

Thank you!

[Hal_Al]

. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion (up to $1000) of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit. 

You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.