Need based FSEOG refund and 1098-T Box 5

[RecentGrad37]

Hello,

All of my Pell Grant went towards my tuition and qualified expenses and only my FSEOG grant was refunded to me directly.

Because of the FSEOG being refunded back to me, my Box 5 ended up exceeding my Box 1 on my 1098-T.

Would I report the excess as taxable income since I did not receive back any of the Pell Grant but only the FSEOG grant as a refund?

Thank you all for your help!

[KrisD15]

Yes,

when you enter the 1098-T into TurboTax (in the EDUCATION section under "Deductions & Credits") the program will determine the taxable portion. 

You do not need to adjust the 1098-T.

Be sure to add other expenses, such as books and supplies, which may not be included on the 1098-T.

The TurboTax program gives you different screens to enter the different expenses which are not on the 1098-T. 

Pub 970 

[Hal_Al]

 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.