Graduate Student Scholarships 1098-T + W2

[rjabara]

Hello, I am in a PHD program where in 2022 I had W2 income (box 1) for part of the year, then switched to Fellowship/Scholarship assistance only reported on 1098-T (box 1 and box 5).  Turbotax seems to a) tax all of this income the same and b) doesn't provide any education credits leaving me with a hefty tax bill, and c) showing Gross Income of much more than I actually received in income (deposited to my account).  It doesn't seem right.  Can you advise how to reconcile the 3 amounts in Box 1 of W2 + Box 1 and 5 in 1098-T?

Thanks.

[Hal_Al]

W-2 income is entered separately (on line 1a of form 1040) from the 1098-T amounts. There is no intertwining between W-2 income and the 1098-T despite the fact they both came form the school.

If box 5 of the 1098-T is more than box 1, TurboTax will treat the difference as taxable income, unless you enter additional expenses.  If box 5 of the 1098-T is more than box 1, you are not qualified for a tuition credit because all your tuition was paid by the tax free portion of the scholarship. You have the option of declaring more of your scholarship taxable, in order to free up tuition for the credit.  The Lifetime Learning Credit is 20% of tuition. If you are in a lower tax bracket, there would some advantage to doing so.   

[rjabara]

Thank you.  2 follow up questions.  1.  how would I reduce income by adding additional expenses (is this room and board paid through the scholarship?) and 2.  How can I declare more income taxable to try to get the LLC?

Thank you.

[Hal_Al]

Q1.  how would I reduce income by adding additional expenses (is this room and board paid through the scholarship?)

A1.  Actually, you can not add additional expense, since grad students are not eligible for the American Opportunity credit (AOC).  Books, computers and other course materials are qualified expenses for the AOC, but not the LLC.  Room & Board are not qualified expenses for either credit. 

Q2.  How can I declare more income taxable to try to get the LLC?

A2.  When asked if any of the scholarship was used for room and board, answer yes. Then enter the amount you want to be taxable, in the pop up box. R&B are not "qualified educational  expenses".  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put the taxable amount on line 8r of Schedule 1 (this line is new for 2022).

[rjabara]

Thank you, the University sent a note stating that the Health Care Plan, while included on your 1098-T, is not taxable this year. and it should be removed from the taxable income.  Does that sound right and where in TT can I do that?

[AmyC]

There are a couple of options but I think entering it as a negative income with a description makes the most sense if the IRS decides to look at the return.  Follow these steps:

1. go to the federal income section
2. scroll to the bottom
3. Select Miscellaneous Income, 1099-A, 1099-C, Start
4. Scroll to the bottom
5. Select Other reportable income, Start
6. Other taxable income?
7. Select YES
8. Description -something like - nontaxable health insurance included in income
9. Amount, enter your amount as a negative
10. continue