I have a son in college, how to enter in information regarding expenses and income from his grants to take the AOC credit.

[gchmelewski]

The school does not mail out the 1098T statements but they are available on his school account.  I am so confused about proper reporting and don't want to get in trouble reporting this wrong.  According to the tax publication, 970 page 15 says You may be able to increase the combined value of an education credit if the student includes some or all of a scholarship or grant in income in the year it is received.  

I tried just putting in the information from the 1098 T but then I don' t get how to get the credit for the AOC if I input it this way.  

I have on the 1098T statement 7708.00 box 5 and I have 3267.28 in box 1 for expenses.  What I need to know is based on the tip above can I enter the 7708.00 as other income and then use the 3267.28 as my expenses to qualify for the AOC.  This should give me the first part of the credit to reduce my tax due to 0.00 and then I would get the other part in the form of a refund.  

For the AOC it also states to claim the credit the law requires you to have received for 1098-T.  Since the school doesn't report them but they do provide a statement that is not mailed but i can print am i still able to take the AOC?

Also, as for the Credit side of the AOC it  ask if your earned income was less than one half of your support.  Technically his food shelter education was provided through grants. We did get some loans.  lets say 4K for the year. Assume that would be considered support money? so half would be 2K.  Is this correct? so if he earned 3120 then he can qualify then for the additional credit.? 

Any help is greatly appreciated! Thank You.  I tried asking a local Tax person and he was totally not aware of any of this.  Said he never puts the 1098 T information on anyone's return?  I was shocked because at the very least if you get more money awarded than expenses that is taxable.  

[Hal_Al]

Yes, you understand it correctly.  Your son reports  $7708 of taxable scholarship income on his return and you report $3267 of qualified educational expenses on your tax return.  If you or your son are out of pocket for any additional expenses, like books and other course materials, you may add those cost to the $3267.

You have effectively received a  1098-T,  by being able to retrieve it from the web site.  The school has "Issued' a 1098-T and the requirements of the law have been  met.

The  stuff about earned income being more than  half the student's support is only applicable if the student wants to claim the AOC credit on his own return.  The rule does not apply when the parent(s) is claiming the AOC. 

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 $3267  in box 1.  No other numbers, except book costs at the books screen (if you have any). 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.

On your son's return, Enter the 1098-T with $7708 on box 5 and 0 in box 1.

[gchmelewski]

Thank you sooo much.  He will be filing his own return though.  The reason I want to do it this way is so that he is able to get health insurance from the Marketplace.  There is an income threshold to qualify for that and we are using the income from his grants to do so.  With that being said he has to file his own return to have market place insurance.  

But for this tax year he should still be able to meet the support option to claim that refundable credit part correct?.  I did not know that difference you mentioned if it were filed on parent return.  That's good to know. 

So would i enter the 1098-T both numbers on his return then to get to the credit? 

[gchmelewski]

Hal, I am unable to figure out TT.  I am used to entering directly into forms.  I said there was a 1098-t form and put in the box 1 expenses and then the box 5 grant money.  Somehow i ended up with 0.00  income and expenses for deductions? Doesn't make sense because at the very least it would put the difference into income?  How do I get the income to show as income and then where do i put the expenses at .  do i enter a 1098-T into TT at all? Confused. 

[Hal_Al]

Q. But for this tax year he should still be able to meet the support option to claim that refundable credit part correct?

A. No. He did not provide more than half his own support with earned income.

A person can file a tax return and still be a dependent on his parent's return.  I'm not familiar with the rules for obtaining "marketplace insurance.  That's another topic.

[gchmelewski]

Thank You.  I appreciate your taking the time to answer questions.  

For the form 1098-T I noticed for the amount in box 1 related expenses that it is for fall 2019 and spring 2020.  The amount in box five for the grants is fall and spring 2019.  Am i required to figure up expenses for 2019 fall and spring or do we use this number on the form? which crosses two tax years? 

[gchmelewski]

Hal wanted to know what your thoughts would be then.    My son has 3120 wages income and that 's it.  then his 1098-T form.  I know you said he wouldn't qualify on his return for the AOC refundable credit.  you said I could file his return and then claim as dependent still on my return.  putting the income of 7708 from the grants on his and putting the expenses on my return. I split this up the AOC has two sides to it the first part reduces taxes due the second piece is the refundable part. If i were to do this method am i still able to reduce the taxes due on his side.  am i spitting up the two parts of the aoc on both our returns?

[Hal_Al]

You may not split the two parts of the AOC.  In order for him to claim the non refundable part, you would have to forgo claiming him as a dependent.  But, he doesn't need the AOC to get his tax to zero.  $3120 + 7708 = less than the $12,200 standard deduction, so he will have no income tax liability.

As to the crossed years, you use this numbers on the form.  It's not what years they were for; it in what year the expenses were paid by the scholarships, that counts.

[gchmelewski]

Thanks.  So I can add the income to his return.  which reason I am filing is he had federal withheld.  So I want that back.  So to make sure I understand I can claim the grant money received as income on my son's return.  since his wages are low it won't generate a tax due anyway.  Got it.  And I can enter a 1098T o my return but I just put the expenses in only to get the AOC credit.  which is perfectly legal.  

[gchmelewski]

Sorry one more question where do i enter the income from the grants on his return as other income? 

[Hal_Al]

You do not enter it as "other income". To qualify for the standard deduction, it must be entered on line 1 of form 1040 with the notation SCH.

In TurboTax enter it under deductions & credits / educational expenses (do not enter in the income section).

The simple thing to do is use the form 1098-T screen.  Enter the taxable amount of scholarship in box 5 and 0 in box 1.

[gchmelewski]

HI Hal.  So for my son's return, I entered a 1098-t form as you said and put 0.00 for the expenses and put the 7708.00 in for the income.  Now it's treating it as unearned income tax and mentioning a form 8615?  I have it as he's single and can be claimed as a dependant on another return.  Please advise.  (I put also 1098-T on my return with him as a dependant, and did the opposite put in 3267.28 as expenses and 0.00 as income). 

[Hal_Al]

Yes, form 8615 is the "kiddie tax".  Taxable scholarship income is unearned income for purposes of the kiddie tax, but is earned income for purposes of the standard deduction calculation.  So after TT jumps thru the hoops of form 8615, he will still owe no tax.

[gchmelewski]

Great, that is what I noticed.  for 2019 it said I didn't have to do this so I left it that way but said I would for 2020.  Thank you for all your help.  YOU ROCK!!

[gchmelewski]

I am also looking to possibly file his 2018 return.  I didn't do it because all he had was the same as in 2019, some wages and a 1098-T.  I was thinking I would file his 2018 so I can get his federal money back.  Can I also do the same and put his income from his 1098-T on his return and then amend my return to add the expense side to get the AOC credit. or would I ben penalized?