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StingerAlex
Level 4

Full Scholarship TAX return

Hello,

 

I did not find information about this matter in the knowledge base, so please excuse me.

My daughter received full scholarship - FAFSA aid through Pell Grant and Cal Grant and University gave her "free" residence through its own scholarship. And this scholarship turned out to be even more the cost of the residency, so they paid her $900 in cash to her bank account plus $500 of private scholarship from Award Fund. Some money was spent on books and motebook, about $2000.

I have read the tones of articles about the taxes in the case of education scholarships, and still do not understand which tax return all this information, including pending 1099-T form, goes to? According to what I read it goes to my return because she is my dependent, but from another info it goes to her tax return because it is the full scholarship, I will not have any credits for it and it does make any sense to put it to my tax return.

Plus the residency, room and board, part of the aid is taxable and should go to daughter's TAX return.

So I am overall confused.

 

Thanks!

4 Best answer

Accepted Solutions
JotikaT2
Employee Tax Expert

Full Scholarship TAX return

You will report the 1098-T tuition on your tax return and enter any applicable scholarships as part of your entries into the program.

 

  1. Go to the Federal section.
  2. Click on Deductions & Credits
  3. Select the Education tab
  4. Select Tuition and proceed to answer the questions.

Scholarships are taxable if used for the following items:

  • Room & board
  • Travel & incidental expenses
  • Any fees, books & supplies not required for classes

 Scholarships are not taxable if used at an eligible school for a degree if used for:

  • Tuition & fees
  • Fees, books, supplies needed for classes
  • Scholarship or fellowship for services from:
  • National Health Services Corps Scholarship Program
  • Armed Forces Health Professions Scholarship & Financial Assistance program

 

Help for when scholarships are taxable vs. not taxable

 

The excess of the scholarship income over the actual allowed education expenses would be reported on your daughter's return as scholarship income. 

 

However, she would need to meet the filing requirements threshold to determine if she even needs to file a return. 

 

Please see the following to help you determine if she needs to file a tax return.  

 

Gross income amount for dependents

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StingerAlex
Level 4

Full Scholarship TAX return

This is the huge document. 🙂 It assumes that you do interactive tax return, or agent is doing it for you, and fill 1040 form with your help. In our case Turbotax plays the agent's role, it does not give you the way to work directly to 1040 form, on contrary it is asking certain questions and generates 1040 on a fly, based on your answers. So Turbox is the one who is learning this publication. 🙂

 

Could you tell me, just in simple steps"

 

1. Higher education goes to only daughter's return, ot on our both returns? Still not clear.

2. If I have to put "yes" on the question about Higher Education, should I put 1098-T in my return, or not?

3. If I report 1098-T in my return should I report spending on the books, printer, laptop and so on? And if I am the one who reports those numbers does it mean that daughter answer "no" on the question about how much we spent in the student store, and outside of the dorm?

4. Who is putting part of the scholarship which was not spent on the tuition, basically the difference between box 5 and box 1? If I put, turbotax pops up reminder that daughter has to file own return.

 

I believe all my questions are more about the turbotax usage, than about the law. Because in my case we deal with the rare situation when box 5 is more than box 1, i.e. all costs are covered by scholarships with even excess in cash. This case is not much discussed, in the case of partial coverage I have learned perfectly what to do, and how to distribute charges between the returns. But in my case, if I report spending, she does not report anything, but the excess amount of box 5 over box 1. If she reports all spending on materials and books, I might duplicate it, depending how turbotax is working, I do not know algorithm. Am I correct that in this case it is better for mine and IRS good,  not to even mention higher education and 1098-T in my return?

Or what goes to mine and hers in terms of the turbotax questions?

 

Please clarify this for me. 🙂

 

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KrisD15
Employee Tax Expert

Full Scholarship TAX return

1. If the student is your dependent, you enter all the forms (1098-T, 1099-Q) in your program so that TurboTax can do the math.

2. answered above

3. Yes, if you enter  the 1098-T you enter ALL the expenses, books and all, room and board too.  

     Once you're done, your TurboTax program will issue instructions about what the student needs to claim (if anything) 

     The student may  never need to enter the 1098-t on their return even if they need to file

4. Right, again, you enter it (the additional scholarships) so TurboTax can do the math, but if they are taxable, TurboTax will tell YOU in YOUR program that the student needs to file. 

 

Also, be aware that  there is a "Maxamize My Tax Break" button. If you can get more credit by having the student claim more tax, it will do that. 

 

IRS Pub 970 

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KrisD15
Employee Tax Expert

Full Scholarship TAX return

Yes, I think you've got it now. YAY!

Leave the boxes blank on her 1098-T screen if it will let you get through like that. Just enter the amount she needs to claim and yes, enter it as if she received "other scholarships". 

 

I could have given you instructions for an easier way to report her income, but the way you are doing it is fine. 

 

(and YES, you could just leave box 1 blank and put the amount she needs to claim in box 5 on her return if that is easier)

 

Whatever YOUR program told you to have HER claim should show up on HER 1040. 

 

If you are still having issues, use the @ sign before my ID so I get a notice. 

 

like this 

 

@StingerAlex

 

@KrisD15

 

Hope this takes care of everything!!

 

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47 Replies
JotikaT2
Employee Tax Expert

Full Scholarship TAX return

You will report the 1098-T tuition on your tax return and enter any applicable scholarships as part of your entries into the program.

 

  1. Go to the Federal section.
  2. Click on Deductions & Credits
  3. Select the Education tab
  4. Select Tuition and proceed to answer the questions.

Scholarships are taxable if used for the following items:

  • Room & board
  • Travel & incidental expenses
  • Any fees, books & supplies not required for classes

 Scholarships are not taxable if used at an eligible school for a degree if used for:

  • Tuition & fees
  • Fees, books, supplies needed for classes
  • Scholarship or fellowship for services from:
  • National Health Services Corps Scholarship Program
  • Armed Forces Health Professions Scholarship & Financial Assistance program

 

Help for when scholarships are taxable vs. not taxable

 

The excess of the scholarship income over the actual allowed education expenses would be reported on your daughter's return as scholarship income. 

 

However, she would need to meet the filing requirements threshold to determine if she even needs to file a return. 

 

Please see the following to help you determine if she needs to file a tax return.  

 

Gross income amount for dependents

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StingerAlex
Level 4

Full Scholarship TAX return

Zillions thanks! You are so great!

 

May I ask you the question if I have some problems upon receiving 1099-T?

KrisD15
Employee Tax Expert

Full Scholarship TAX return

Yes, you will enter the 1098-T and all other education information IF YOU ARE CLAIMING THE STUDENT as your dependent. If you are not claiming her, she would enter them. 

 

If you are claiming  her, you enter the information into your TurboTax program, so that it can make the calculations. Once the calculations are made, the program will tell you if there is a credit available and/or if there is tax due. 

 

If there is a credit available, that credit will be claimed on your return. 

If there is tax due, for example on a scholarship used for room and board, that tax will be reported on the students return. Your TurboTax program will tell you if the student needs to report taxable income, and if so, how. 

 

The school should send the 1098-T. It may be mailed to you or your daughter's address, depending on what address the school has on file. 

It might also be available online by looking at her online school account. 

As a last resort, you can call the school and ask for a copy. 

 

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StingerAlex
Level 4

Full Scholarship TAX return

Thank you!

 

I will claim her as my dependent.

In this case - who is going to report residency scholarship (money which covered room and board),  spending on materials, notebook, books, what is the rule?

Does it mean, that if she is dependent, room and board will be in my tax return, and if she is independent and claim everything by herself, it goes to her tax return?

Or room and board goes to her return in all cases by default?

It is very good to understand in theory, not just blindly follow the TurboTax, program I love very much, but also wanna be in the area understanding.

Thank you again!

Hal_Al
Level 15

Full Scholarship TAX return

Not confused yet, let me add another wrinkle.

 

There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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 $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

You can both use the 1098-T to enter the expenses. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your kid should use the 1098-T because it makes entering scholarship income go smoother.

Hal_Al
Level 15

Full Scholarship TAX return

Question: Does it mean, that if she is dependent, room and board will be in my tax return, and if she is independent and claim everything by herself, it goes to her tax return? Or room and board goes to her return in all cases by default?

 

Simple answer: room and board scholarships goes to her return. 

 

But, if room and board scholarship is already include in box 5 of the 1098-T (and it usually is), you do not need to separate it.  Follow the example in my other reply.

StingerAlex
Level 4

Full Scholarship TAX return

Thank you, great!

StingerAlex
Level 4

Full Scholarship TAX return

I received this 1099-T form. Box 1 is not empty. Box 5 contains the whole amount and does not separate tuition, which is not taxable income, and room & board, which is taxable.

Besides this fact, I am looking into bills and see that total balance for the Fall Semester is equal to the number in the Box 5, but the actual amount used was less, and she had an refund almost $1000 (985.25) which was credited to her checking account and spent for the life in the Campus - food, some dress, and e.t.c.

So what number I have to report on my Tax return - the one in the 1099-T Box 5, or the actual amount used from the the Univ financial Statement, and the excess in the amount of the refund goes to her TAX return?

 

And how to separate education from the room & board? There are two parts: Part 1 "Payments received for tuition" and Part 2 "Scholarship or Grants".

Part 2 is exact number from Box 5. Does it mean I have to substruct Part 2 - Part1 = "Room and board" and it will be taxable?

Or Turbotax will do this by itself, and I do not have think about it? I am afraid to start without firm understanding. I already put the rest of the info into Turbotax and do not want to corrupt the algorithm.

 

Thank you!

JotikaT2
Employee Tax Expert

Full Scholarship TAX return

Enter the information exactly how it is reported on Form 1098-T.

 

In the input section, you will see a page titled "Here's Your Education Summary".

 

There are sections to enter your other education expenses, scholarships, and education information.

 

The scholarship questions will ask you to break out any costs such as room and board.

 

As long as you enter all of this information correctly, TurboTax will do the calculation for you.

 

Education input

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StingerAlex
Level 4

Full Scholarship TAX return

Thank you!

 

But there is nothing like "Here's Your Education Summary" in my 1099-T form

 

There is only information about tuition cost and overall scholarships and grants. There is nothing said about "Room and board". That is why I asked the question how to calculate it.

StingerAlex
Level 4

Full Scholarship TAX return

Requested and received the Rental Verification, and this gave me the actual number that will go to daughter's TAX return.

 

But another problem came up : some part of the college scholarship was credited back to her checking account as the refund  according to college financial statement. In addition she got another side scholarship $500, and it also went to checking account as a cash.

 

Turbotax neither recognizes them, nor asks about it, and as the result request to put only Rental Room and Board balance to her tax return. Same 1099-T form - do not see any refund info on it.

What should I do? Add this refund amount along with the second scholarship to Room & Board and put it to return?

 

Thanks!

StingerAlex
Level 4

Full Scholarship TAX return

Update:

1.Turbotax while I was in my tax return asked my daughter to report room & board in her return. But where in the program I should put it? As far as I understand it is an income, but turbotax did not ask me about it or I do not see the specific question.

2.Where in turbotax I should put scholarships and refunds from the grants and scholarships from 1099-T? I do not see it.

3. Am I correct that daughter being dependent should answer "no" on the "Do you want to enter your higher education expenses?" question (1099-T).  Otherwise we would report 1099-T on two tax returns.

 

Thanks!

Hal_Al
Level 15

Full Scholarship TAX return

 

It is OK to enter the 1098-T on her return. You are not really "reporting" it, you are just using it as an entry tool. Nothing about a 1098-T will go on her actual IRS forms.

 

Even though she has taxable scholarship income, you do not enter it in the income section of TurboTax (TT).

 

You enter it at  "enter your higher education expenses"  At the 1098-T screen, enter the taxable amount in box 5 and zero (0) in box 1.  Do not enter the actual numbers on her actual 1098-T. Make no other entries in the education section. 

 

TT puts the income on line 1 of form 1040, with the notation SCH. It is treated as earned income for purposes  of calculating her standard deduction.

StingerAlex
Level 4

Full Scholarship TAX return

Many thanks!

First I am very sorry calling 1098-T form 1099-T. My negligence.

 

She has:

1.Room & Board Rental verification,  say $10,000 out of overall  $20,000 scholarships and grants from 1098-T;

2. Refund from the amount from box 5 ($20000) which was not used for tuition pay transferred to her checking account. ($1000);

3. Additional scholarship in the amount of say $500 in cash in her checking account.

 

So, she answers "yes" on the question about higher education, and put $10,000 + $1000 + $500 into box 5 of her 1098-T form "report" to make these money "reportable" even though the actual numbers are different and speaking roughly have nothing to do with the college itself?

 

Did I understand you? Thank you!

 

I would say it is far from obvious solution. 🙂 Without your help I would never come close to resolution.

It is the trick, it is much better to have the straightforward workflow in the turbotax.

 

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