Q. If my son only has a 1098T to report- payments and scholarship amounts, does he need to file any taxes?
A. Probably not.
If that is his only income and the taxable amount is less than $12,950, he does not need to file a tax return.
The taxable amount of scholarships, including Pell grants, is the amount of the scholarship that exceeds qualified educational expenses (QEE-tuition, fees and undergraduate course materials).
If box 5 of your 1098-T is more than box 1, TurboTax will automatically treat the difference as taxable scholarship income unless you tell it differently, by entering additional expenses.
If you know that he does not have enough income to have to file, you can just not enter the 1098-T. It is only an informational document.
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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.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.
