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

Zillions thanks! You are so great!

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

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. 

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!

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.

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.

Thank you, great!

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!

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.

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.

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!

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!

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.

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.

Unfortunately this way does not work in the Turbotax. When dependent filing out 1098-T information program know about all numbers and there is no way to put own numbers equal to room and board spending.

It sounds like box 5 of the 1098-T for your daughter is larger than box 1?

If there is scholarship income, then there likely is no benefit to reporting the 1098-T in your tax return.

Then your daughter will be reporting the scholarship income on her own dependent tax return.

If there are education benefits available, you may find that your income will be too high to permit you to use those  benefits.  You just have to enter the 1098-T to see the outcome.

This help is a good explanation of the various possibilities.

Room and board SPENDING is irrelevant (unless you have a 529 plan).  What's relevant is excess scholarship; the amount that exceeds qualified educational expenses (QEE) (tuition, fees and course materials). 

Using an example: student has $10,000 in scholarships and $6000 in QEE. She reports $4000 of scholarship income. 

If the parent wants to claim the AOC, she reports $8000 of income. 

"information program know about all numbers". Only if you enter em.  When you enter the educational program, in TT, you get blank form at the 1098-T screen.

Thank you!

Here is the process:

1. I put 1098-T into my tax return, where daughter is claimed dependent.

2. Turbotax knows about all numbers in the 1098-T boxes by itself based on the college license.

3. After step 2 it asked me about how much was spent on the books and materials, it asked me to qualify how much of that amount is required to be spent in the college student store, and how much was spent on materials and devices bought outside.

4. In the next step TURBOTAX by itself WARNED daughter to have her personal dependent tax return prepared, and showed the exact amount of money she has to put in education part of the deductions division. It is not my will, I of course can put tripled amount, but it is not required by the program and I assume by the IRS. 

5. I finished preparation of my own TAX return.

6. I then started new return for my daughter, at this moment turbotax already knew what I put in my return regarding her higher education, and come up with numbers in boxes 1 and 5 and asked me  "How much of this amount (box 5) was spent on room and board?".  Attention: it does not ask me about excess, it is asking me specifically about room and board. If you look at the start of our conversation, you will see what problem was the subject of my concern, without any knowledge of how turbotax is working I assumed there the way of calculating the taxable amount of the scholarship and grants,  and my preliminary assessment was exactly what you are saying :  box5 - box1 with some discrepancies , but it is wrong, only room and board is taxable, and this amount is less then difference between numbers in the  boxes. I do not know, that is why I wanted to understand how turbotax is working on the first place and opened this topic.

7. It is not the end of adventure. Now turbotax is asking about "Child with Investment Income", and I have to go back to my state tax return (Form 540/540A/540NR, Line 19) and put the number from that line into "Your Parent's Total Taxable Income" field, and after this Total Taxes.

And basically that's all, at least for me.

In the end I still could not file because of this message: "From 1040:Individual Form 8615 Tax for certain Children will be available only on 02/20/2020".

And all this is only because my daughter had income in the amount of the part of the scholarship spent only on room and board, and it is $10,000 in my example. I am not sure in the "Child investment income", I never seen it before.

Still I am not confident that everything is correct, I do not understand why it is more complicated then the rocket science. 🙂

Thanks again! This is my first experience, so I am sorry to keep posting.

Yes, the new tax law (effective 2018) made scholarship income subject to the "kiddie tax" (form 8615).  "Child with Investment Income" is some what of a misnomer. It's child with unearned income. Although scholarships are earned income for purposes of the standard deduction, it is not for purposes of the kiddie tax )or Earned Income Credit).

"I then started new return for my daughter, at this moment turbotax already knew what I put in my return regarding her higher education, and come up with numbers in boxes 1 and 5". No, that's not possible TT  does not have that capability   

1. Yes, the new tax law (effective 2018) made scholarship income subject to the "kiddie tax" (form 8615). "Child with Investment Income" is some what of a misnomer. It's child with unearned income. Although scholarships are earned income for purposes of the standard deduction, it is not for purposes of the kiddie tax )or Earned Income Credit).

I understand that room and board and any excess of the box 1 amount is now child unearned income this child has to report in the personal tax return. What I do not understand why this calculation has to depend on my taxable amount from the Line 19 of my 540 form, especially my return includes only non-taxable tuition part of the scholarships. I do not see any logic. My taxable amount does not depend upon her education fees, but in turn, affects her return. It is strange and not straightforward. It is my dilettante's feeling. 🙂

2."I then started new return for my daughter, at this moment turbotax already knew what I put in my return regarding her higher education, and come up with numbers in boxes 1 and 5". No, that's not possible TT does not have that capability 

But starting her return I never put any college information, but somehow program came up with numbers from 1098-T.

Her return: Federal taxes --->Deductions---->Education---->Did You Pay for Books or Materials to Attend School? ---> Scholarships and Financial Aid ----> Did you receive a Scholarship or Grant in 2019?

At this point I answer "yes", but program already shows "Scholarships/Grants/Fellowships listed on 1098-T", exact amount, without asking me any information about the college, only having daughter's personal info.

How? 🙂

There is one more confusing thing. I include her 1098-T into my return, and going through the turbotax questions put the cost of the books, materials and equipment, it is more then $2000, because the only macbook is $1800, into my return.

Then we are going to her return, to Deductions----> Education----> "Now Let's Gather Your Additional Education Expenses"---->"Did You Pay for Books or Materials to Attend School?". I answered "no", but program at least has to help with making the decision on how to answer. If I answer "Yes", I will double report same money on two returns.

So, here is my solution:

I removed the whole education part from my tax return because scholarships cover all tuition fees. Did not mention any expenses related to computers, books, materials and e.t.c. Child income on my return is 0.

Moved all this to daughter's return to make thing clear and straight, moved all numbers spent in the student store and outside, instead of putting it in my return. And instead of putting only housing and food into the field asking what part of scholarships was paid to room and board, I technically subtract number in box 1 from the number in the box 5. May be I added some not related to room and board, but I do not want to torture myself reading all college bills and choose specific items from them.

And now it is much simpler. Still not clear why there is Child Investment Income, but it is OK.

It sounds like you're giving up on trying to claim the tuition credit, on your return; which you can do by making more ($4000 more) of the scholarship taxable on her return.

There  is "Child Investment Income" simply because the IRS (and Congress) says Scholarship must be classified as investment income for purposes of the "kiddie tax" which must be taxed at the parent's tax rate. 

If you are eligible and still want to claim the credit, provide the following numbers and I’ll tell you exactly how to enter it all:

Box 1 amount on the 1098-T

Box 5 amount on the 1098-T

Amount of other scholarships not shown in box 5

Amount of other qualified expenses (tuition, fees, books and other course materials, including required computers) you paid that were not included in box 1

Note that we don’t need amounts for room and board or misc. school supplies (paper &pencils). A printer would not pass muster as required material.

_____________________________________________________________________________

FYI, here’s my standard answer, on this issue:

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 son should use the 1098-T because it makes entering scholarship income go smoother. The 1098-T is only any 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. You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T

From the 2018 form 1040 instructions (pg 100): “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, line 17c, and IRS.gov/EdCredit

You essentially have to use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $4000 in box 1. No other numbers. You only enter the 1098-T to get TurboTax to check the proper box on form 8863. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.

Enter the 1098-T, exactly as received, on the student's return, except enter $4000 less than the actual box 1  amount ( or $4000 more in the box 5 amount).

Thank you so much.

1. I have read an article on the IRS forums that if scholarships cover all tuition amount parent do not need to report education in there Tax return because he will not get education tax credit anyways. Said this author did not explain to readers: if this happens do parents need to put 1098-T in there return even they do not claim education, do they need to put all other numbers like how much was spent on the books and materials and in what stores, do they need to mention how much was spent on non-educational needs like travel and e.t.c., do they need to other other scholarships. I selected "no" everywhere in my Education part of Deductions only because:

a) I am not sure if I should to do this when I do not need to claim education in my return at all in the case of the full coverage, and I did not find any specific notes and recommendations. This situation, when student gets full scholarship and everything is covered, is not thoroughly explained.

b) I have a problem with putting any numbers into the boxes, as I said earlier, because Turbotax does not give this opportunity setting property of those box numbers to Read-Only, which means it shows me only preloaded numbers, and I have no control over it in Turbotax, I have to go to hard copy of the 1040 form to put $4000 into box1.

So here is the question:

Should I put 1098-T info and all numbers in my return, answer "yes" on higher education question,  even though my daughter will do the same on hers? Wouldn't it to be double reporting? I simply do not know this, sorry.  Now she has to pay to both - Federal and State, I do not pay them. If I put everything to my return are we going to pay together double, or numbers in my return get disregarded as soon as I have no education tax credit?

I have noticed one thing - as I already said I did not put any info about 1098-T form into daughter's preparation during Turbotax interview, but Turbotax knew all info and all numbers.

Now I answered "no" on having 1098-T in my return, do not put any data related to this form, but Turbotax still knows about it, there is no magic in the world - all data must be kept somewhere on the cloud, otherwise I do not have any explanation. 🙂

No, TurboTax does not store or share tax information. 

You are correct, expenses cannot be used twice. 

IRS Pub 970 explains everything about the 1098-T ans 1099-Q. 

IRS Pub 970