My son did a paid summer internship (chemistry) at the University of Iowa. That is not his regular school. He attends Wheaton College in Massachusetts. They send me a 1098-T each year, which I am accustomed to dealing with. The University of Iowa did not send a 1098-T, but I have a "substitute". According to this, his stipend (?), or payment for his paid internship has been considered a scholarship (Box 5 on a 1098-T). I'm unsure of how to claim this. Oh, we claim him as a dependent. Can anyone help?
Yes, when you enter the 1098-T from Wheaton College, continue through the interview. The program will ask if the student received any other scholarships. You may select "Yes" and enter the amount from Box 5 from the University of Iowa.
If only Box 5 is populated on that 1098-T, you do not need to enter it, just the amount of the scholarship.
How much is the stipend for? Does he have any other income. If his total income is less than $12,200, he does not need to file a tax return or report that income. This assumes that he also has less than $1100 of investment income (interest, dividends, capital gains, taxable 529 distributions.
If it's more, he enters the UI 1098-T on his return, at Education expenses (not in the income section of TT). He enters no education expenses. The income will go on line 1 of form 1040 with the notation, SCH
Thanks. This (Iowa's approach) just strikes me as strange. This is basically income for him, not really a scholarship in any traditional sense. They have reported it as a scholarship, which I assume will affect the equation for education credits, even though it does not apply directly to his tuition. It's more like a summer job. I'm quite frustrated by it. The way they have done this is most likely to hurt me rather than helping him. If it were regular income for him, he wouldn't even have to report it. Thanks for your help, though.
Q. This (Iowa's approach) just strikes me as strange.
A. It's frequently done that. I'd say more often than not.
Q. They have reported it as a scholarship, which I assume will affect the equation for education credits.
A. No. Because it is being reported as income, on your son's return, it is not tax free scholarship. So it does count against the education credit. You do not report the UI 1098-T on your return.
Q. The way they have done this is most likely to hurt me rather than helping him. If it were regular income for him, he wouldn't even have to report it.
A. Just the opposite. As scholarship, rather than wages, he pays no FICA tax. As explained above, you still get the tuition credit.
I'm not sure I understand. I don't think I can skip reporting this on my return, as he is a dependent and this was reported as a scholarship. There is no W-2 for this, so my son will not report as income. On the other hand, I am specifically being asked if he received any other scholarships by Turbo Tax, so I would have to lie to skip reporting this as part of the education credit section. Also, it now appears I am getting conflicting advice. Not sure what to do with this.
Q. Not sure what to do with this.
A. You need to stop fighting the advice you're being given.
Q. I don't think I can skip reporting this on my return, as he is a dependent and this was reported as a scholarship.
A. The 1098-T is only any 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 deduction or possibly your student has taxable scholarship income. You claim the tuition credit, based on your own financial records, not the 1098-T.
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 only need to enter the Wheaton 1098-T
Q. There is no W-2 for this, so my son will not report as income.
A. That's wrong. Not all income is reported on a W-2. There were no educational expenses at IU, so the scholarship was not used for qualified expenses. That makes it income. You dependent's income does not go on your tax return, it goes on his.
Q. I am specifically being asked if he received any other scholarships by Turbo Tax ( infer "that has not been reported elsewhere").
A. Lying to TurboTax, to get it to enter the data correctly, does not constitute lying to the IRS.
Q. Also, it now appears I am getting conflicting advice.
A. That sometimes happens, in this forum when the situation is nuanced. @KrisD15 - could you jump back in and clarify your response to remove the conflict.
Even if you enter it as scholarship, you should be aware that you have the option of calling it income (on his return) by saying it was used for room & board. This is an available tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, 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.
This is not some sinister scheme. From the 2019 form 1040 instructions (pg 95): “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040, line 18c, and IRS.gov/EdCredit. Page 16 of IRS Publication 970 (2019) actually has examples of how to do the “loop hole”.