If box 5 is larger than box 2 in my 1098-T, even though my scholarship only covers tuition, does that count as income?

[blancoysalsa15]

My 1098-T shows that the scholarships or grants (box 5) I received are larger than the amount billed by the school (box 2). It seems that when I am trying to do my taxes, turbotax is taking the difference of these two boxes and adding it to my income, but my scholarship is a full-tuition scholarship that ONLY covers tuition expenses. I never receive this money, and it is only applied to cover my tuition. It seems that the school reported the 2017 spring semester bill in my 2016 1098-T.

Does this count as income even though my scholarship only covers tuition, or am I doing something wrong?

[JohnW15]

No, you’re not doing anything wrong – this counts as income.

When your reported scholarships or grants amount (Box 5) exceeds the amounts billed for qualified tuition and related expenses (Box 2), the difference must be reported as  taxable income on your federal return.  TurboTax is performing this calculation for you.

For more information, see “Worksheet 1-1, Taxable Scholarship and Fellowship Grant Income” on page 7 of IRS Publication 970, Tax Benefits for Education.

[blancoysalsa15]

Looking at the IRS publication you posted, my scholarship only covers a qualified education expense (which is the school’s tuition for each semester). Shouldn’t this qualify the scholarship as tax free, since it can’t be used for anything BUT the required school tuition?

[blancoysalsa15]

double post

[blancoysalsa15]

Double post

[JohnW15]

I understand your predicament, and this isn’t an unusual scenario.  It’s strictly an issue of when you paid your expenses.
As you note, since the school reported your 2017 spring semester payments for qualified tuition and related expenses in 2016, the scholarship amounts reported for 2017 aren’t offsetting those costs for 2017.  
All the IRS can “see” – since Form 1098-T is submitted to the IRS from the university – is that your 2017 scholarship is greater than your 2017 qualified tuition and related expenses, thereby making the excess appear taxable.  
And, it is taxable, since the IRS is looking at tax year 2017.  If the 2017 spring semester expenses had been paid in 2017, the offset would be complete, and there’d be no taxable income.
If you did, in fact, pay your 2017 spring semester expenses in 2017, but they were reported on your 2016 1098-T, then you should contact your school immediately to request amended Forms 1098-T for both years.

[Dufay]

I respectfully disagree--under section 117 of the Code an undergraduate scholarship covering tuition is not income no matter what the Form 1098-T says.  Box 7 of the Form 1098-T is checked by the educational institution if it includes in tuition amounts from Boxes 1 and 2 that relate to a period beginning January-March of the following year.  That is because the institution is only required to report what happens in the calendar year which is covered by the Form.  So, it may well have included the tuition for the Spring 2017 semester in the Form 1098-T for 2016.  That doesn't make the 2017 scholarship taxable.  Worksheet 1-1, Line 6, asks for your qualified educational expenses.  It doesn't say that you have to use the figure in your 2017 Form 1098-T.  You can fill in your actual 2017 expenses to which your scholarship relates.

[Mbmoler]

My daughter has scholarships that exceed her qualified tuition on her 1098t. We have entered her 1098t exactly as it appears. However turbo tax is putting the full amount of the scholarships in income and not reducing it by the amount of qualified tuition in box 1.  My understanding is that only the amount of scholarships that exceed the qualified tuition should be placed in income.  

[Carl]

Understand this:

All scholarships, grants and 529 distributions received in a tax year are treated as taxable income *INITIALLY*. The taxability of that educational aid is then offset by the *qualified* education expenses they are used to pay for. So if you have any amount of schoarships or grants not used for a qualified education expenses in the same tax year it was awarded to you then that excess amount is taxable income to you *UNLESS* the college did not physically pay it to you and is holding it to apply to your qualified expenses in the next tax year.

[Mbmoler]

Thank you. Yes this is also my understanding.  However my issue is that Turbo tax is including the full amount of the scholarship in income and not reducing it by the qualified tuition.  For example, our 1098t has 25,000 of qualified tuition and 30,000 in scholarships.  My understanding is 5000 should be included in income.  Turbo tax is adding the full 30,000 to income and then calculating a 4000 tuition deduction. 

[ColeenD3]

You need to go through the entire Education section to indicate that you did have the expenses for your tuition.