Payment from third party not included on 1098T

[Sybbiemom1]

In addition to his academic scholarships, my son receives sponsor payments from our state vocational rehabiltation services for his tuition, living expenses and books.  The grant (I think that is how it should characterized) is NOT from VA or related to receipt of SSI benefits.   I believe the money comes from a WIOA grant to the state from the federal government to help young people with disabilities reach their vocational goals.  The portion awarded for tutition is paid directly to his school and has been accounted for on his 1098-T in box 1 and 7.  I cannot, however, find specific guidance on  how to treat the funds that were distributed to him directly to cover his rent, living expenses and books.  My thought is that the amount should be added to the total in box 7?  Also, on December 31, 2020, he deposited the check for his spring 2021 semester living expenses.  He made his first use of the funds on Jan 1, 2021 to pay rent. Will he need to include that on his 2020 taxes or can he wait to include it in his 2021 taxes.  

[ReneeM7122]

The prepaid money that was received in 2020 for 2021 school living expenses should be reported in the year that it was received (2020), regardless of when it was used.  This is because of something called the matching principle.  See IRS Pub 538 for more information.

The amounts that were given to him for rent and living expenses should not be reported together with the funds for books.  This is because books are considered necessary for education; living expenses and food is something everyone needs regardless of whether they are receiving a college education or not.  Those items are considered "income" for federal tax purposes, and are taxable as such.  The books are not.

To enter your scholarship income in TurboTax, in your return, go to Federal Taxes, Deductions & Credits, Education and the program will walk you through the information about your scholarship income, to determine what's taxable.

Here is a TurboTax article with more information about scholarships.