When you enter a 1098-T in TurboTax and the Pell grant exceeds tuition and fees, TurboTax automatically enters the excess refunded amount as taxable wages. This excess is added to Form 1040, Line 7 with an SCH in the margin.
Make sure that you account for ALL of the tuition and fees that were spent, including fees, books, supplies, and equipment required for courses at the educational institution.
To edit information entered from your Expenses and Scholarship section in TurboTax, do the following:
- Log in to your TurboTax Online account, or open your TurboTax CD/Download
- Click to Continue your return/Take me to my return
- Click on Federal Taxes (Personal in TurboTax Home & Business)
- Click on Deductions & Credits (click continue and I'll choose what I will work on, if offered)
- Find Education (click to Show More, if offered)
- Locate Expenses and Scholarships (Form 1098-T)
- Click to Start or Update
- On the next screen you will click Edit beside the student's name whose education expenses need to be edited
- The following screen will have the option to edit Scholarships/Grants that you have entered. Correct your entry and continue through the rest of the screens until you are done with that section
Here's some other info you may find helpful:
Any portion of your Pell grant that is not spent on qualified education expenses is required to be reported on your tax return. Qualified education expenses include tuition and fee payments, and the books, supplies, and equipment required for your courses.
For example, if you take a biology class and the professor requires all students to purchase a specific textbook, the cost of the book is a qualified expense. If the professor only recommends the book, it is not a qualified education expense.
If you use your Pell grant to pay for room and board charges, or to travel to your permanent home on weekends or holidays, then the amount will be considered taxable income.
If you don't use all of your Pell grant money for qualified education expenses, you need to determine how much of the grant to report on your tax return. Schools commonly combine all student charges in one account. For example, suppose your expenses for the semester are $4,000 for tuition, $2,000 for room and board, and $500 for required textbooks. If you receive a $3,000 Pell grant and use it on tuition and/or books, you won’t have to report any of it on your tax return. If you receive a $5,000 grant, $500 of it will be taxable since you only incurred $4,500 of qualified expenses ($4,000 for tuition and $500 for required books).