1098-T lowered refund

[nicknowak-icloud]

My son is a freshman in college.  Turbo tax had him planned for a $250 Michigan refund.  As soon as I put in his 1098-T, he now owes Michigan $250.  Box 1 of "payments received for qualified tuition and related expenses" was almost $12,000 and box 5 has a scholarship amount of $8000.  So his scholarships did not exceed his qualified payments.  Why would this lower his federal return and also cost him $500 to the state of Michigan?  (Turbotax also prompted us to fill out a form 8615)

[nicknowak-icloud]

Edit:  I had the numbers a bit wrong:  Adding his $8000 scholarship into box 5 of the 1098-T lowers his federal return by $144 and makes his Michigan refund of $69 into owing the state $259.  

[KrisD15]

To clarify,

Are you saying that the 1098-T shows 12,000 in Box 1 and 8,000 in Box 5 with no adjustments in other boxes and the program is generating tax from that 1098-T? 

What is listed on Schedule 1 line 8r? 

Is the student a dependent?

Is the taxpayer claiming the student getting an education credit?  

[nicknowak-icloud]

Yes, the 1098-T shows $11,891 in box 1 and $8,000 in box 5.  All other boxes are at zero.  There is no amount listed on schedule 1 line 8r.  The student is a dependent.  My wife and I claim him and file jointly.  I did not put in any 1098-T information in my taxes so I don't believe I'm getting a tax credit.  

[KrisD15]

Normally the 1098-T is entered into the program of the Taxpayer claiming the student and that TurboTax program tells that taxpayer if the student needs to claim any income because of the 1098-T.

Even so, entering a 1098-T into the dependent's program with more expenses than scholarship should not generate taxable income. 

Did the student's return generate income on Schedule 1?

Did you go back through the education interview and make sure everything was answered correctly and the scholarship was not entered twice and that you DID NOT report that it was used for Room and Board?

(using for room and board rather than tuition would make the scholarship taxable)