How do I claim 1098T Scholarships?

[Amy H]

There was a post that mentioned.....

1. Most people subtract box 1 from box 5 and enter the difference as income. 

So for my daughter on her 1098T  there is in box 1 $8,571.00 and box 5 $8,561.

Are you saying the difference (-$10.00) is what we would enter under the Education category for her on OUR tax forms not what is in box 5?

[MayaD]

You don't need to make the calculation yourself. Just enter form 1098-T in TurboTax and if box 5 exceeds box 1, the difference will be treated as taxable income. 

If you're getting a degree at an eligible school, your scholarship is tax-free when used for:

• Tuition and fees
• Fees, books, supplies or equipment required for your courses
• Any scholarship or fellowship for services received under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program

Why is my scholarship taxable?

To enter form 1098-T:

1. Go to Federal Taxes,
2. Go to Deductions and Credits.
3. Scroll down to Education and click show more.
4. Scroll down to Expenses and Scholarships (Form 1098-T) 
5. Answer Yes for the question if you received a 1098-T.
6. On the following screen choose the student.

[Hal_Al]

Most people subtract box 1 from box 5 and enter the difference as income, if Box 5 is MORE than box 1.

You do not report you student-dependent's scholarship income on your tax return.  If she has any taxable scholarship income, it goes on her separate tax return.  The full box 5 amount is not taxable.  Only the amount that exceeds qualified expenses is taxable. Since box 1 (of the 1098-T) is all qualified expenses, the difference between box 1 and box 5 (if box 5 is more) is usually the taxable amount.  You can usually reduce that amount by the cost of books and other required course materials.  Scholataships that pay for Qualified educational expenses (tuition, fees, books and other required course materials is tax free.  Scholarships that pay for room & board) are taxable.

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".  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. 

[Club1820]

Ok.  So this sounds pretty straightforward.   Using round numbers, my son's 1099-T has $40K in box 1 and $34K in box 5.  So box one is qualified expenses and its larger than the grant, Box 5.  So he wouldnt have to report income.    BUT,  the school also provides a 2nd page on the electronic version of the 1099-T where it itemizes the expenses.  The itemized expenses only total $30K.  the difference between Box 1 $40K and the itemized expenses of $30K are the room & board expenses.    By this understanding, $4K would be Grant $$ that did not pay for allowable education expenses, - Grant $34K less Itemized Expenses = $4k.   SO,  do I follow the 1099-T Box 1 ($40) and Box 4 ($34K) to determine we don't have income?   OR do we take into account the itemized pages of expenses that would then show $4K of reportable income?   Does the IRS also get the additional information provided by the school or just the actual 1099-T form?    Essential WE know the grant covered more that the allowable expenses but the 1099-T says it didnt.  How should we proceed?

[Hal_Al]

Q. Does the IRS also get the additional information provided by the school or just the actual 1099-T form?   

A. No.

Q.   How should we proceed?

A.  Since YOU know the grant covered more than what the 1098-T says,  that's what you use.

The school erred in putting room & board in box 1 of the 1098-T.  But, 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. 

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. 

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.

If you claim the tuition credit, you do need to report that you got a 1098-T.   The TurboTax interview will handle that.  See "loop hole" above