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full schlolarship and 1098-T when the scholarship amount is more than tuition due to room and board

1098T has $16k box 1 and $29k box 5

The excess scholarship money was refunded by school to me so I could pay my rent.

I am a dependent on my parents filing. I had no costs, so they didn't claim anything on their filing. 

Is there a requirement for me to file a return?  I also earned $800 -- W2.

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2 Replies
KrisD15
Expert Alumni

full schlolarship and 1098-T when the scholarship amount is more than tuition due to room and board

YES

The "money refunded to me so I could pay rent" is taxable income you must claim. 

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Hal_Al
Level 15

full schlolarship and 1098-T when the scholarship amount is more than tuition due to room and board

Q. Is there a requirement for me to file a return?

A.  Yes and no.   Based on those numbers, you have $13,000 of taxable scholarship income (29K - 16K = $13K).

So, $13,000 + $800 = $13,800 total reportable income. That is less than your $13,850 filing requirement, so no, you do not need to file a tax return. 

 

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

 

But, wait. There's more.

  There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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  conditions of the grant are that it be used to pay for qualified expenses (tuition).

Using your numbers: Student has $29,000 in box 5 of the 1098-T and $16.000 in box 1. At first glance he/she has $13,000 of taxable income and nobody can claim the American opportunity credit. But if she reports $17,000 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 $16,000 of taxable scholarship income, instead of $17, 000.  The student will pay about $300 in tax while the parents get $2500 (usually). 

The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970 even has examples of how to do the “loop hole”.

 

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