MY 1098T form is making me owe money, I thought it's supposed to give me a tax break.

[elise-lopez]

The amount of scholarships and grants, box 5, was greater than the amount billed for qualified tuition and related expense, box 2. Is this what would cause me to have to pay taxes?

[rainydaze]

Scholarships/Grants that exceed the amount of qualifying educational expenses become taxable income to the student.  For example, if your scholarships and grants are $10,000, but your qualifying educational expenses are only $7,000, you would owe taxes on the remaining $3,000.

Keep in mind qualifying amounts are for tuition and fees, books, equipment - room and board as well as transportation are not considered qualifying education expenses.  

[mitchem99]

You do realize room and board are either the first or second biggest expense while in college? The fact that they are not considered qualifying educational expenses is preposterous since shelter on or near campus is a prerequisite to attending college. Due to its omission in the tax code, the gap between scholarships, grants, etc., and the tuition and fees makes poor, immensely indebted students pay even more taxes after doing the 1098-T form a lot of the time; when in reality, all their scholarships and grants went to expenses related to college, which are housing, tuition, and other miscellaneous fees charged to us for events and services on campus. So in truth, there is no gap between the two boxes in real life as they are on the paper so that there should be no extra taxation of students. Colleges make sure they do not give us more money than we need to break even. 

[NCperson]

@mitchem99 - cool down! First, the IRS doesn't pay for personal shelter or food, even if you are employed - it's just the way it is.  

even if Box 5 exceeds Box 1, that doesn't necessarily mean it will cause you to pay tax.  It depends on your income situation.   If your total income is under $12,200 (I assume you are single and not a dependent of your parents), there is no tax in any event!

[Uni1074]

You are absolutely right and thank you for posting this.

[RalphH1]

Good points were made in this thread, but another thing to keep in mind is that it’s possible to choose to allocate more of your scholarship money to room & board, increasing your tax, so that you have more qualifying tuition to use for an education credit which is actually larger than that additional tax (sometimes much larger).

For example (to use rainydaze’s scenario), if you have $10,000 of scholarship funds and $7,000 of tuition, you can say you used $7,000 of the scholarship on room & board (instead of just $3,000). That leaves $3,000 to offset tuition, which means you have the remaining $4,000 of tuition to use toward a maximum “American Opportunity Credit” (which is a dollar-for-dollar “refund” of the first $2,000 of qualifying education expenses, and 25% of the second $2,000).

Here is the IRS telling us about this treatment, and here’s a TurboTax support discussion with some of the logistics in the program. Note that it is more applicable to undergraduates (as the American Opportunity Credit is the best one, and only available to them), and also that the scholarship must not be specifically earmarked for actual tuition payments (see RaifH’s post in that last thread).

The underlying concept here is that any dollar of “qualifying expenses” (i.e. tuition and fees, but not room & board) can be used for only one tax benefit: to either make a dollar of scholarship non-taxable or to get a credit (but never both—that’s called “double-dipping”). So you want the one that results in the best overall result on your tax return.

@Uni1074