Im very confused on how to file my college expenses. How do I properly calculate what's included in my 1098 form?

[Carl]

YOu don't calculate anything on  your 1098-T. YOu enter it *exactly* as printed. Box 1 is the amount of monies received by the school for your *qualified* education expenes. Box 5 is the amount of scholarships/grants/529 funds paid directly to the school on  your behalf. If box 5 exceeds box 1 ***AND*** you were paid the difference by the college, then the amount you were paid is 100% taxable income to you.

If you are an undergraduate and box 5 does not exceed box 1, then I seriously doubt that you will report "anything" for education on your tax return. Instead, your parents will report it on their return.

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

Now there are two separate determinations to be made here.

• Who claims the student as a dependent.
• Who reports all the education expenses and claims all the education credits.

First, who claims the student as a dependent?

If the student:

Is under the age of 24 on Dec 31 of the tax year and:

Is enrolled in an undergraduate program at an accredited institution and:

Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:

the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

Then:

The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”.  To reiterate:

If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.

Who reports all the education expenses and claims all the credits?

If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:

The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

The parents will claim all educational tax credits that qualify.

If the student will be filing a tax return and:

The parents qualify to claim the student as a dependent, then:

The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return.

.If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses,  then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

 If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s investment income exceeds $1,050 or if the student’s earned income when added to the excess scholarships/grants does NOT exceed $12,350 for the 2019 tax year, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $12,350, then the student should file a tax return so as to get those withheld taxes refunded.

1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred to and included in the total on line 7 of the 1040.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is included in the total on line 7..

Finally, out of pocket money is applied to qualified education expenses. However, take ***SPECIAL*** ***NOTICE*** that the tuition and fees deduction expired at the end of the 2017 tax year and was not renewed for the 2018 tax year. It’s unknown if it will be renewed in the future. If it is renewed for the 2019 tax year, the only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money. As of this writing, (3/26/2019) congress has not renewed the out of pocket expense deduction, which expired in 2017.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

[JotikaT2]

It depends.

If you are being claimed as a dependent on your parent's return, they will be the ones who report the 1098-T information.  

If they are not claiming you and you are filing your own return, you can input the 1098-T into your return.

The input for your 1098-T information is as follows:

1. Go to the Federal section of the program.
2. Select "Deductions & Credits"
3. Select "Expenses and Scholarships (Form 1098-T)" and click start
4. Make sure you click edit to the right of your name to enter the 1098-T info.

Be sure to enter your 1098-T form exactly as it was provided to you.  If you have additional expenses not reported on Form 1098-T, you can enter those under "Other Education Expenses".

Here is a handy chart that compares the education credits and each of the requirements.  

Chart comparing credits

Tuition & fees deduction

American Opportunity Credit is available for the first 4 years of college while working towards a degree.  The maximum credit is $2,500 per eligible student, must be enrolled at least half time for at least 1 semester, and up to $1,000 can be refunded to you.

Lifetime Learning Credit is not limited by the number of years in school and can be used for undergrad, graduate, and professional degree courses, including ones to improve job skills.

The maximum credit is $2,000 per tax return, can be used when only taking 1 class, you don't need to be working towards a degree, and none of the credit is refundable.

[She]

But what if The payments received is Box 1 6400 the grants and scholarships box 5  is 12,422.00 never received a refund for difference. This is never happened before. My son received a bachelor’s -degree in May 2020.  He is now enrolled in a masters degree starting fall of 2020... there’s no amounts in any of the other boxes.  Box  8 is checked if at least have time student box Nine is  checked  graduate student in box 7 is checked.  I don’t understand why He would have to include 4000 something for his income because he never received the difference between 6400 and the 12,422  no refund was issued to him from the University. Where did the money go? Maybe towards 2021 ? So confused.  I don’t know how to file this? 

[DaveF1006]

At this point, you wish to receive clarification from them. Usually, if there was a an excess of scholarship money, usually it meant that the excess was distributed as income received OR there may have been other expenses such as room and board paid out. if that is the case, then the room and board can be claim to offset some the excess scholarship amount.

When i went to school, any excess payments were applied toward my expenses but was included in Box 1 of the 1098-T. Presently, there are unanswered questions that can only be supplied by the university.  As of right now, there is an $6000 excess of taxable income that must be reported in the 1098-T. The school may need to issue a corrected 1098-T to account for some or all of that $6000 excess.