How to enter taxable education assistance

[Bayu]

Nice to e-meet you all. 

I'd like to request a favor to guide me on how to enter the taxable education expense for my daughter's tax return in TurboTax. I'm really confused.

Situation:

- We live in California

- Daughter as my dependent has 1098T with box 1 (tuition): $13,000 and box 5 (grant): $20,000

- I filed the daughter's 1098T in my tax return:

** I put the remaining $7,000 ($20K-$13K) for room and board. TT asks me to file that as taxable income in daughter's tax return but doesn't tell me how.

** I put $900 from my cash as education expenses and get $900 AOTC.

** I forgot to put the student loan $7,500 as expenses.

- Daughter's internship wages was $3,900 and it'll be filed in her tax return.

- Daughter uses TurboTax free edition online.

Question:

- How to enter the $7,000 excess as taxable education assistance in my daughter's tax return? Need step-by-step guide in TurboTax.

- Will it make my daughter's owe taxes (federal / state)?

- Can my tax return be amended to add the student loan as education expense? It's been accepted already by IRS.

Thank you

[NCperson]

let's go back to the beginning.

that 1098T needs to go on your DAUGHTER's tax return , since the scholarships exceed to tuition and related fees.  That $7,000 is taxable income to your daughter, who presumably is at a lower tax rate then you are.

if you are stating that the $900 of expenses are 'related fees" (say book required for classes that were not purchased from the university), then your DAUGHTER's 1098T would be $6100 and not $7000.  Can you explain in more detail what you spent the $900 on? You can not put that on your tax return!!! (box 1 would be increased by the $900 to make the math work)

the student loan is not tax deductible; it has no bearing on the math here

So now we have $6100 of earned income for the student and another $3900 in wages, which totals $10,000.  IF THERE IS NO FEDERAL WITHHOLDINGS THERE IS NO REQUIREMENT TO FILE.  and your child is done (with no fee to TT) !!!!

[Bayu]

Hi @NCperson ,

Thanks for replying.

The $900 was for books (from university) and computer (not from university).

I had filed my return before my daughter's and I had put her 1098T on mine (with $20K in box 5 and $13K in box 1 as stated in the 1098T).

I imported the 1098T form into TT.

I did that because I thought it should be like that  since I claimed her as my dependent and I followed the steps in TT.

When I put that in my TT, it's mentioned that my daughter should put that $7000 from scholarship which was used for room and board as taxable income in my daughter's return.

Now my daughter is preparing her tax return using TT and she's confused in which step in her TT that $7000 should be entered.

Does she need to enter her 1098T again in her TT?

If yes what amount should be entered in box 1 and 5?

Are they the same amount as in her 1098T form?

Will it be a duplication with my tax return entry?

Or should I amend my return to remove her 1098T from my return? (it's been accepted by IRS already)

Besides of scholarship, she also has W2 of $3900 from her internship work out of campus.

Thank you.

[NCperson · Accepted solution]

1) on your return, there should have been no impact.  If you are using the desktop version, you can prove it to yourself by going into Forms View, deleting form 1098T and watch to see whether the amount of the refund / amount due changes.  It shouldn't which proves no impact and no need to file an amendment.

 2) yes, on her return, enter the 1098T again with $13,000 in Box 1 and $20,000 in Box 5. Just rekey the form exactly as it is presented to you. 

3) with respect to the $900.  The money spent on the computer is not tax deductible, so there is nothing to do there.  The money spent on the books: if they were REQUIRED for a clasee, then increase Box 1 by that amount.  if they were not required (say, you bought a dictionary, if anyone does that anymore!!), then that is not deductible. 

but again, she may not have to file a federal return at all.  the W-2 wages are $3900 and the educational income is about $6500 from items 2 and 3 above, so that is about $10,500.  if there were NO federal withholdings on that $3900, there is NO REQUIREMENT to file a return because the total income is less than $12200.   What makes your daughter believe she has to file (and it may be because she had withholdings).  and your state rules may be different.  

[Carl]

More simply put:

The below assumes that your daughter was paid by the school, the excess scholarship money so that she could spend it any way she liked. If the school did not refund the excess scholarship to your daughter, then let me know, as things will be handled in a completely different manner then.
- What you the parent spent on your daughter's education does not matter. It doesn't count since scholarships exceed the total of all qualified education expenses.

 - You will still claim your daughter as a dependent on your tax return. You will not report one penny of education stuff on your tax return.

- Your daughter will report the 1098-T on her own tax return (weather she likes it or not) along with any other qualified education expenses paid that are not included in box 1. (It doesn't matter who paid those expenses either.).

 -Your daughter (not you) will pay taxes on the excess scholarship money not used for qualified education expenses. (She has no say or choice in this matter either.)

- Your daughter will be taxed on the excess scholarship money at the parent's higher tax rate. So you can expect your daughter to be contacting you for your tax information. She is required by law to include it on her tax return, to show how the tax rate was determined for the excess scholarship.

[Bayu]

Hi @NCperson ,

Thank you very much for the clear explanation.

I understand now.

By the way my daughter may still need to file her return because of the federal withholdings on her W2.

[NCperson]

since she has withholding, she MUST file a return - it's the only way to get the withholdings back!

[Bayu]

Hi @NCperson ,

After my daughter input her 1098T into her return, TT says that she needs to wait until 8615 Form be available.

Is that correct?

My apology for so many questions.

Thank you.

[NCperson]

@Bayu  - are you using desktop or online version?  I just pulled up the form in desktop and it looks fine.... do you have the latest version of the software (at the top of TT, click 'online' and then click 'check for updates'.)  

[Bayu]

Hi @NCperson ,

I and my daughter use the online version.

[Hal_Al]

There is a tax  break available, even when the student has a full scholarship. 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 $20,000 in box 5 of the 1098-T and $13,000 in box 1. At first glance he/she has $7000  (reduced by any book or other qualified expenses)  of taxable income and nobody can claim the American opportunity credit. But if she reports $11,000 (reduced by any book or other qualified expenses) as income on her return, the parents can claim $4000 of qualified expenses on their return.

You can both use the 1098-T to enter the expenses, adjusting the amounts as needed.  If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your student should use the 1098-T because it makes entering scholarship income go smoother.

This is allowed. From the 2018 form 1040 instructions (pg 100): “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 17c, and IRS.gov/EdCredit.  Page 16 of PUB 970 (2019) actually has examples of how to do this.

[Hal_Al]

If Turbotax  tries to make you upgrade, be advised that TurboTax also has another free product called the Free File Edition (not to be confused with the regular Free Edition).  It has free Federal preparation and free State preparation. There is no efiling fee. It is not available after October 15

The Free file Edition is more fully-featured than the regular Free Edition.  The Free File Edition can prepare Schedule A, C, D, E, and F that the Free Edition cannot. 

For Free File Edition a user needs to meet only ONE of these qualifications:

•      AGI of $36,000 or less
•      or active duty military (including Reservists and National Guard) with a military-issued W-2 and a 2019 AGI of $69,000 or less
•      or eligible for the Earned Income Credit (EIC aka EITC).

The FREE FILE Edition is located at:
https://turbotax.intuit.com/taxfreedom

How to switch and start over in Free file Edition
https://ttlc.intuit.com/questions/2026912-how-do-i-switch-to-turbotax-freedom-edition

[Bayu]

Thank you @Hal_Al !