Q. IRS says this should be taxable and can be included in roth ira. How do you get TT to recognize it as income?
A. The taxable portion of the fellowship, on the 1098-T, must be reported on line 8r of Schedule 1 to be recognized as earned income ("compensation") for an IRA contribution.
TT will automatically treat the difference between box 5 and box 1 as taxable scholarship and place it on line 8r, unless you enter additional expenses to reduce the taxable amount. If you want additional amount to be taxable, answer yes when asked if any of the grant was used for room and board. 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 it on line 8r of Schedule 1.
Example $5000 in box 1 and $6000 in box 5. TT will treat $1000 as taxable. But if you tell TT $2000 was used for room and board, then $2000 will go on line 8r and be treated as earned income. You must also check the grad student box on the 1098-T.
Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). 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.
