1098-T Box 7 checked: how to handle, and where are instructions/explanation?

[girishapte]

On a 1098-T with amounts only in Box 1 and Box 5,  Box 7 checked, and Box 8 checked:

1. Where in Pub 970 (or any IRS publication or any TT doc) is information related to Box 7 and ramifications of checked vs unchecked?

2. What adjustments, if any, is the taxpayer REQUIRED to make to amounts in Box 1 and/or Box 5 because Box 7 is checked when preparing tax return?

3. What adjustments, if any, is the taxpayer ALLOWED to make to amounts in Box 1 and/or Box 5 because Box 7 is checked when preparing tax return?

TIA!

[Hal_Al]

Q. Where in Pub 970 (or any IRS publication or any TT doc) is information related to Box 7 and ramifications of checked vs unchecked?

A. Under "What Expenses Qualify?" (see page12)

"Generally, the credit is allowed for adjusted qualified education
expenses paid in 2023 for an academic period beginning
in 2023 or beginning in the first 3 months of 2024."

Q. What adjustments, if any, is the taxpayer REQUIRED to make to amounts in Box 1 and/or Box 5 because Box 7 is checked when preparing tax return?

A. None. If you made the payment in 2023, you are allowed to claim it on your 2023 return. 

Q What adjustments, if any, is the taxpayer ALLOWED to make to amounts in Box 1 and/or Box 5 because Box 7 is checked when preparing tax return?

A. None, except for known errors. If you made the mistake of making an advanced payment, you're stuck with it. It's not optional on which year you claim the payment. You can only claim it in the year paid.

That said, the 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2023 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

[girishapte]

Thanks for the detailed reply Hal_AI (and i really am curious if you are an AI or a biologic).

I will explore the interview options per your suggestion.

The lack in the 970 of any reference to "Box 7" makes it difficult to know which verbiage is relevant.  I would have thought that a 79-page publication referenced directly in an IRS form about a topic relevant to a large population (anyone receiving a 1098-T) would have somewhere in it a reference to "Box 7".  That's a criticism about the Pub, not you.

Couple of questions based on your answers:

1. Given that educational institution also sends the 1098-T to the IRS, doesnt the IRS system notice if different numbers are used in preparing the return?

2. If I correctly understand, If box5 amount is greater than box1 amount, the difference might potentially be taxable.  This makes me wonder: Financial aid is based on unmet need (cost of attendance - EFC).  If a student's EFC is less than the university's cost of housing for example, and his/her university meets all the need via scholarships and grants and reports that total in box 5, is the amount that exceeds the qualified expenses (the portion that paid for part of the housing) supposed to be treated as potentially taxable income for the student?  If so, does a full-ride scholarship (merit-based or efc=0) create a potentially large taxable income situation for a student attending a university where room&board costs are high?

Thanks in advance!

[Hal_Al · Accepted solution]

Q. 1. Given that educational institution also sends the 1098-T to the IRS, doesnt the IRS system notice if different numbers are used in preparing the return?

A. Apparently not. I (a person,  HAL AL) have not seen a single post of an IRS notification based on a 1098-T discrepancy

Q.  If box5 amount is greater than box1 amount, the difference might potentially be taxable?

A. Yes. TurboTax (TT) will treat the difference as taxable, unless the user enters additional qualified expenses (typically books and a computer). Room & board (R&B) are not qualified expenses.   

Q. Does a full-ride scholarship (merit-based or efc=0) create a potentially large taxable income situation for a student attending a university where room&board costs are high?

A. Yes. 

. 

[girishapte]

Thanks Hal_a person! 😁