Form 1098-T Box 5 Greater than Box 1

[Jim1981]

My son is doing an internship during this 2021 Spring semester which has caused his Form 1098-T Box 5 (Scholarships or Grants) to be greater than Box 1 (Payments received for Tuition).  The University explained  how the IRS requires the boxes to be completed.  Box 5 is based on the calendar year which means all (both semesters) of his scholarships for 2020 appeared in the box while only the Fall semester tuition appeared in Box 1.  Normally what we would have paid for the 2021 Spring semester would have appeared in Box 1 but since he is doing an internship, we did not have to pay.

Since scholarships are greater than expenses,  it is considering this unearned income for my son on his taxes and does not allow us to use the education tax break.  Is there anyway around this that I am missing?  I believe the answer is no but wanted to check to make sure before we completed filing his taxes.

Thanks!

[KrisD15]

The IRS requires schools report what was paid in the tax year (2020) in box 1 and the financial assistance which was received by the school in 2020 in box 5. 

If I understand correctly, you are saying that a scholarship was received for a period in which there were no expenses. 

I am assuming that you are counting the internship in 2021 as part of 2020 if you are calling the first three months of 2021 as Spring. 

So, the question is this-

If the scholarships posted in 2020, but were intended for "Spring 2021", AND you will not have expenses for Spring 2021, what has/will happen to the excess scholarship? 

If the excess scholarship was refunded to the student, it is reported as income by the student. 

If the scholarship is left as a credit in the student's account to be used in 2021, select that in the education interview. (Scholarship is intended for a different year). If this is the case, be sure to claim that same amount on your 2021 tax return if it is not reported on the 2021 1098-T. 

[Jim1981]

Box 5 has 2020 scholarships for both Spring and Fall.  Box 1 only has Fall of 2020.  Which leaves a $13,100 difference that we have to report as income.  The University has to report the scholarships in Box 5 for the calendar year while the expenses in Box 1 are when payments actually post.  So if I would have paid tuition in December for the 2021 Spring semester (like I always have done), those expenses would have appeared in Box 1 and expenses would have been greater than the scholarships.  Everything would have been normal as usual but my son's internship changed that.   These boxes in Form 1098-T do not report things the same way which just does not make sense.

Having to report this as income is ridiculous but it appears there is no way around it.  That is what I am asking.  Is there another way to handle this situation? The scholarships are not left as a credit to his account.  He will resume getting his scholarships when he starts back up for the Fall 2021 semester.

Thanks!

[Hal_Al]

 The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2020 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS. 

[Carl]

In a nutshell:

Colleges work in academic years. The IRS works in Calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

- Scholarships and grants are reported as taxable income (initially) in the tax year they are received. It does not matter what tax year that money is *for*. (Taxability is offset by the qualified expenses the money is used to pay for.)

- Qualified education expenses are claimed/reported in the tax year they are paid. It does not matter what tax year is paid *for*.

If the excess amount in box 5 was refunded to the student, then it's taxable income to the student. The student can offset that taxability if that money was used to pay qualified education expenses in the same tax year. But either way, it gets reported on the student's tax return.

It's also possible the school did not refund the excess to the student, but held on to it to apply it to 2021 qualified expenses. If that's the case, the program can and does deal with this just fine, so that the excess is not taxed, but is instead "carried over" (for lack of a better term). The program does not keep track of the carry over. It's up to the tax filer to keep track of that, for their taxes the next year.

[newtotaxes24]

Jim in your example you said:  "Since scholarships are greater than expenses,  it is considering this unearned income ....".  I don't believe that is correct.   Taxable scholarships are reported on line 1 (Wages) of Form 1040.

I don't know any way around your problem.  It appears that not all Universities complete form 1098T in  the same way.  My daughter's University completes both Box 1 and Box 5 on a calendar basis.

[Hal_Al]

Taxable scholarship income gets special treatment. It is earned income for purposes of the dependent filing requirement and calculation of the dependent's standard deduction (earned income + $350 but no more than $12,400).  That's why it goes on line 1 of form 1040, but with the notation SCH.

It is unearned income for purposes of the "kiddie tax", earned income credit or eligibility for an IRA contribution.

[Jim1981]

I guess I need to ask my question a different way. 0n the 1098-T, Box 1 has $22,445 which represents expenses for the Fall semester while Box 5 has $35,755 which represents both the Spring and Fall semesters. This is not apples to apples. Based on what I have seen in TurboTax, I can adjust the scholarship value to the Fall semester value of  $18,575 so expense and income are one semester.  First, am I understanding that correctly?  Second, can I legally make that adjustment?  I would then have to make a similar adjustment for 2021 the other way because I will end up with two semesters for expenses and only one semester for scholarships because of my son’s internship going on right now. He is not at the university this semester.  If an adjustment cannot be made, then we will report the values as is and pay taxes on it. 

I do appreciate everyone’s comments!

Thank you!

[newtotaxes24]

Jim,

I don't know the answer  to your question.  However, several years ago I dealt with a very similar situation involving timing differences between amounts in Box 1 and box 5 on form 1098T.  What I recall being told at the time was the I could choose to adjust the numbers on the 1098T to reflect what was actually paid/received in a calendar year (so that it was on an apples to apples basis).  However, if I did so I was required to do the same adjustment to the 1098T for every subsequent year my student was in college (so like a one time election).  I think it was necessary to do this in year 1 of college.  It couldn't be done after year 1. 

I don't know what the current rules allow you to do.

Good luck!

[newtotaxes24]

Jim,

What was the tuition paid in calendar year 2020 for Spring and Fall 2020 semesters?

What was the scholarship income received in 2020 for the Spring and Fall 2020 semesters?

Are you using Turbotax Premier?  Look under Federal taxes, then under Deductions & Credits, then Education and then Expenses and Scholarships.

If you go through Step-By-Step you'll come to a screen with "Did your aid include amounts not awarded for 2020 Expenses".  Look at this.  It may help you.

[DumbDadLTG]

I have same issue but from different cause (timing only - no internship involved). Working on 2023 taxes.

Son graduated in May 2023, but was full time student. He rec'd ~ 9k/semester scholarship; Tuition is approx 20k/sem; room/Bd approx 6k/sem).

2023 1098-T as received had 0k Box 1, 9k box 5. 

This reflects 2023 Spring semester. I had paid Tuition in late December 2022 (even though not technically due until Mid January 2023), so Box 1 reflects correctly. The University at that time (Dec 2022) showed on the tuition statement: "expected aid of 9k", so nothing more for me to pay.

However I guess they technically don't apply the scholarship until January 2023 when tuition technically due. There was no January payment to my son, nor a credit to his account that we collected or is still sitting there. 

The impact of reporting 1098-T as is (Box 1 $0; Box 5 $9k), is that I believe that DQ's me from one of the edu credits (haven't gotten that far but believe it will be American Oppty). 

QUESTION for TTax employee: Can I change my Box 5 to $0 since it technically applied to the Tuition that was paid (and effectively credited) in Dec 2022.?

I went back and reran my 2022 TTax as a test adding this 9k  - and it didn't change ANYTHING on that 2022 return (still got the edu credit and Fed/State tax obligation unchanged).

Thanks in advance for the review and comments

[Hal_Al]

Q. Is the impact of reporting 1098-T as is (Box 1 $0; Box 5 $9k) that I don't qualify for one of the edu credits?

A. Yes. It was a mistake to pay the 2023 tuition in December 2022. 

Q.  Can I change my Box 5 to $0 since it technically applied to the Tuition that was paid (and effectively credited) in Dec 2022.?

A. Yes, for the reason stated. Better yet, just don't enter the 1098-T on either your or the student's tax return as you know it has no effect on either. You cannot claim the credit, on your return, and none of the scholarship is taxable to him.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2023 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

Q. "I went back and reran my 2022 TTax as a test adding this 9k  - and it didn't change ANYTHING on that 2022 return (still got the edu credit and Fed/State tax obligation unchanged)."

A. You are allowed to claim tuition paid in 2022, for the first term of 2023, on your 2022 tax return. 

[DumbDadLTG]

Thanks for quick reply.

Appreciate the directness, but bummed about the discovered unintentional mistake. Never really been an issue before he graduated  because he was always still in school so if I "mistakenly" (as I'm discovering now) paid Spring semester early (December), there was always Fall later in that tax year.

For Hal_Al - or any others:

So clearly we had edu expenses - for 2023 even if I paid them end of year 2022. Is there any type of suggested appeal - or work around? My wife and I both recently retired and keeping income low - so think we would have gotten the full 2500 AOC..... where in prior years (when both spouses working) I think this was reduced.

Appreciate further comments. Thx!

[MarilynG1]

Since you already claimed the 2023 tuition in 2022 and received a credit for it in 2022, there's nothing to report for 2023.

Keep the 1098-T for your records, along with documentation of what you actually paid.

@DumbDadLTG