If you are eligible to claim the student as a dependent, you will use the 1098-T on your own return for the American Opportunity Tax Credit or the Lifetime Learning Credit. Even if the 1098-T is in the student's name, as long as you are eligible to claim the student as a dependent, you are also eligible to claim the education credit--regardless of who paid the tuition.
Learn more here.
There are situations where the student reports the education stuff on their own return. But such situations are *not* common. More than likely, it is you the parent that will claim "ALL" the education stuff on your return. Here's the gist straight out of IRS Publication 970.
College Education Expenses
Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:
- Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*
- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.
Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.
Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”. The first one indicates a choice. The second one provides no choice.
Now there are two separate determinations to be made here.
First, who claims the student as a dependent?
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited institution and:
Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:
the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)
Then:
The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”. To reiterate:
If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.
Who reports all the education expenses and claims all the credits?
If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:
The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:
The parents will claim all educational tax credits that qualify.
If the student will be filing a tax return and:
The parents qualify to claim the student as a dependent, then:
The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.
Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return.
.If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses, then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.) Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.
In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.
If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s investment income exceeds $1,050 or if the student’s earned income when added to the excess scholarships/grants does NOT exceed $12,350 for the 2019 tax year, then the student doesn’t even need to file a tax return, and nothing has to be reported.
If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.
Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $12,350, then the student should file a tax return so as to get those withheld taxes refunded.
1099-Q Funds
First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to and included in the total on line 7 of the 1040.
Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is included in the total on line 7..
Finally, out of pocket money is applied to qualified education expenses. However, take ***SPECIAL*** ***NOTICE*** that the tuition and fees deduction expired at the end of the 2017 tax year and was not renewed for the 2018 tax year. It’s unknown if it will be renewed in the future. If it is renewed for the 2019 tax year, the only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money. As of this writing, (3/26/2019) congress has not renewed the out of pocket expense deduction, which expired in 2017.
When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.
Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.
If you are eligible to claim the student as a dependent, you will use the 1098-T on your own return for the American Opportunity Tax Credit or the Lifetime Learning Credit. Even if the 1098-T is in the student's name, as long as you are eligible to claim the student as a dependent, you are also eligible to claim the education credit--regardless of who paid the tuition.
Learn more here.
This is the first year I've paid tuition for my daughter and didn't have the 1098-T form when I filed, (on Mar. 17).
I know I can file an ammendment.....should I?
It depends. If you were eligible for an Education Tax Credit or deduction that you did not take, filing an amended return could result in a refund. And if your daughter had taxable scholarship money reported on the Form 1098-T, then you would need to file an amended return.
I did that and it says my child needs to file a return because there was a difference. There is an amount in box 1 and 5 and amount in box 5 is greater. However she gets no cash from school it goes all to education - books, meals, room and board. So I filed without her as a dependent and now I am not sure how to file for her 🤦🏻♀️
@Dawn86 If you daughter is required to file a return, she will report the Excess Scholarship Income on her return. Room and Board is not considered a Qualified Education Expense, unless paid with 529 funds.
This link gives info on Qualified Education Expenses and this link talks about Taxable Scholarship Income.
Current filing requirements for a non-dependent under 65 are more than $12,400 in Earned Income (which is the Standard Deduction for a single person).
If she is not required to file a return, save the 1098-T for your records.
Dawn86 said: "So I filed without her as a dependent".
Just because you child needs to file a return does not mean she is not your dependent.
There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
If all that applies to you, you will need to file an amended return, claiming your daughter as a dependent and most likely claim the American Opportunity Credit (see loop hole explanation below).
Furthermore, there is a rule that says IF somebody else CAN claim her as a dependent, she is not allowed to claim herself. If she has sufficient income (usually more than $12,400), she can & should still file taxes. In TurboTax, she indicates that somebody else can claim her as a dependent, at the personal information section. TT will check that box on form 1040.
Even if she had less, he is allowed to file if she needs to get back income tax withholding. She cannot get back social security or Medicare tax withholding.
Dawn86 said: However she gets no cash from school it goes all to education - books, meals, room and board.
The part that goes to meals, room and board, is taxable. It does have to go thru her hands to be taxable. It just has to go to unqualified expenses.
________________________________________________________________________________________
There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), 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.
Hi Carl, I hope you are doing good. I wanted to ask if this information also pertains to 2020 tax returns? Just to make sure I understood correctly, so every time scholarships exceeds qualified tuition and related expenses the CHILD reports the 1098-T on their return? And if qualified tuition and related expenses exceeds scholarships, the PARENTS reports the 1098-T?
That is correct.
For a dependent student, the Taxpayer claiming the student enters all the education information (1099-Q if they used a 529 savings plan and 1098-T) into their TurboTax program so that TurboTax can do the math.
If there is an education credit, the Taxpayer claiming the student (usually the parents) get the credit.
If there is income to be reported, the student needs to claim the income. the parents program will say how much the student needs to claim if this is the case.
BE AWARE that the program may suggest that the student claim scholarships as income if by doing this the "Freed-up" education expenses give the parents a better education credit.
Go through the entire education interview until you click "Maximize My Tax Break".
If you want to change the credit TurboTax chooses for you, type letme into the search-box and then click the "Jump to letme" link.
Q. EVERY time scholarships exceeds qualified tuition and related expenses the CHILD reports the 1098-T on their return? And if qualified tuition and related expenses exceeds scholarships, the PARENTS reports the 1098-T?
A. Yes, that's the general rule. But, no, it's not EVERY time. Frequently, both the student and the parent will enter the 1098-T, as the parent claims the tuition credit and the student declares scholarship income.
The 1098-T is only an 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.
If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.
Hello,
My daughter is in med school, started in Sep 2020. I transferred 30K into her bank account in Sep 2020. She used that money pay from her own account as fee to med school and received a 1099-T in her name 2020. She is past 24yrs by Dec 2020 and turbo tax deemed her such that I can't claim her as dependent. She had part time job and income in 2020 and she filed her own return and doesn't have tax and has not claimed 1099-T. I am about to fine my own return. Can I use her 1099-T while not claiming her as dependent and get the credit?
regards
No. The tuition credit goes with the student's exemption (dependency). If she is not your dependent, you can not claim a tuition credit for paying her expenses.
However, she may claim it, even though you paid for her schooling. Grad students are not eligible for the refundable education credit. So, if she did not have enough income to have a tax liability, the credit will do her no good.
She would have to have had more than $4300 of income to not qualify as your dependent.
There are two types of dependents, "Qualifying Children"(QC) and standard ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit (under 24) and student status test, a relationship test and a residence test.
A person can still be a Qualifying relative dependent, if not a Qualifying Child, if he meets the 6 tests for claiming a dependent:
In either case:
Hi,
Thank you very much very clear explanation about QC and education fee credit. Pl. clarify couple of aspects.
In the 6 tests to decide if a child is dependent or not, you didn't particularly list age as one of the tests though you did mention it in the text above that the age could limit dependency. My daughter is already past 24 years. And she will be a full time med students for the next three years and will not have income, and thus probably not filing return 2021 onwards. I will be heling her for school fee, boarding and lodging etc.
- But still I can't claim her as dependent on my IT return, is it?
- And can't claim education 1098-T credit as well?
Q. In the 6 tests to decide if a child is dependent or not, you didn't particularly list age as one of the tests though you did mention it in the text above that the age could limit dependency.
A. Earlier in this thread, the rules for a Qualifying Child (QC) were explained. To be a QC, the child must be under 24 and a Full Time Student. Since your daughter is already past 24 years, she cannot be a QC. We then look to see if she can be a dependent, under the 6 Qualifying Relative (QR) Rules (the 2nd set of rules above). Age is not a rule for QR dependents; nor is student status. All that matters now is her income and the amount of your financial support.
So, since she has no income and if your "helping her for school fee, boarding and lodging" is more than half her support, you still claim her as dependent and can claim the education 1098-T credit as well.
The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf
MY SON, 22, HAS A W-2 WITH WAGES $13200 AND SCHORSHIP TAXBLE IS $6600. SINCE HE IS UNDER 24 AND FULL-TIME STUDENT CAN BE AS A QUALIFING CHILD OR OTHER DEPENDENT IN MY RETURN FOR EITC?
I THINK HE SHOULD FILE HIS RETURN BUT I WOULD LIKE TO KNOW WITH HIS EARNED INCOME AND TAXABLE SCHOLARSHIP (SCHOLARSHIP EXCEEDS THE TUITION) IS HE CHILD OR OTHER DEPENDET FOR EITC PART?
Yes, as a student under 24 he very well could be your dependent.
If this is the case, the student must file a tax return as a dependent which MIGHT cause him to owe a little more in tax, but your credit might be more than the increase in tax that the student owes.
The main issue is if the student provided more than half of his own support, in which case he would NOT be a dependent.
Since you mention that he had college costs, that expense counts as part of his needed support, HOWEVER the Scholarship income does not count.
So whatever scholarships covered is support HE DID NOT PROVIDE HIMSELF.
If he put any money into savings, that does not count as him providing his own support.
As a student, you can still count housing you provide even if he is away at school if he is ONLY away to attend school and intends to return home.
You can add all his expenses and only subtract what he paid with his onw EARNED INCOME (no scholarships or gifts). If his EARNED INCOME did not pay for more than half his expenses, he is a Dependent.
Click here for a support worksheet
According to the IRS:
“Qualified education expenses paid by a dependent you claim on your tax return, or by a third party for that dependent, are considered paid by you.”
As others have said, as long as he did not provide more than half his own support, he can still be your Qualifying Child (QC) dependent for the EITC. You will only get the Other dependent Credit ($500) instead of the child tax credit, since he is over 16. But, he is still a QC for purposes of the EITC. Scholarships, including the $6600 taxable part, are not considered support provided by him, for the support test.
He does need to file a tax return and will owe about $800 of federal tax. The scholarship income is considered unearned income and the "kiddie tax" will apply (a portion of the income will be taxed at the parent's marginal tax rate.
I noticed in the response if the "excess scholarships/grants does NOT exceed $12,350 for the 2019 tax year, then the student doesn't even need to file a tax return, and nothing has to be reported."
Our dependent daughter received a grant for 2023, and we as parents, did not qualify for the 1098-T tax credit, and our daughter has no other income. Has the $12,350 limited changed sine 2019? Is there an easy form with Turbotax our daughter can fill out, if necessary?
Thank you.
If you daughter received scholarship/grant funds that exceed all of her qualified education expenses, then she could report the excess as taxable income on her own return.
However, if she is not required to file a return, then no, it does not get reported.
Here's more info on Taxable Scholarships.
Unfortunately, she would need to file a standard Form 1040 if she is required to file. There is no longer any 'short form'.
To get the taxable scholarship reported on her return, she should enter the 1098-T and education expenses in her return. The excess scholarship income will then be reported properly on Form 1040.
Q. Has the $12,350 limited changed sine 2019?
A. $13850 for 2023.
This is the best explanation I've seen. Thank you for taking the time to explain the IRS code in regular language!
I wanted to point out a possible error in the explanation, at least the way I'm reading it. For the sentence, about whether a dependent needs to file their own taxes, you explained if their investment income " exceeds $ 1050", they do not need to file. But it should be if their investment income is under $1050.
Still a great explanation.
Thanks, I am confused for this part, Support , if my son have a W-2 around $22000 and Had 18 units in a year, can say he is full-time student an $22000 is not too much for part of support?
Q. If my son have a W-2 around $22000 and Had 18 units in a year, can say he is full-time student?
A. The school defines what "full time" is. Yo have to ask them. 12 units per term is the usual for full time.
Q. Is $22000 is not too much for part of support?
A. If he is full time and a QC dependent, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on himself.
The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf
There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if: