Is the entire box 5 1098-T taxable

[ksdonathan]

Is the full amount on box 5 from my 1098-T taxable? I know that most of the aid that I received for school went to pay tuition, and came from the state and federal money (through Oklahomas promise and PEL grant.

[Carl]

Here's how this works.

Scholarships/grants are applied to qualified education expenses first. The only qualified education expenses for a scholarship/grant are tuition, books, and lab fees. That's it. Period. After that, any excess scholarships/grants are taxable income to the student.

Next, 529 funds reported on a 1099-Q are applied. The qualified education expenses for 1099-Q money can be used for tuition, books, lab fees and room & board. 1099-Q funds are applied to room and board last. Anything left over is taxable income to the student.

• 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.

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 at least a half time student for one academic semester that begins during the tax year, (each institution has their own definition of a half 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 will claim the student as a dependent on the parent's tax return and:

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 ieven f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

Now here’s some additional information that may or may not affect who files the 1098-T. If the amount of scholarships/grants exceeds the amount of qualified education expenses, 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 earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, 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 $6200, then the student should file a tax return so as to get those withheld taxes refunded.

[racheljmc]

According to TurboTax the student's amount of income also affects their status as a dependent.  If the student earns more than a set amount (which is somewhere around $5000) then they cannot be claimed as a dependent.  If anyone has a different understanding of this I would appreciate hearing about it.

[Texas Roger]

There is no specific income limit for a full time student under the age of 24 to be claimed as a dependent. The limit is that the student cannot have provided more than half their own support. A student could have $50,000 of income and put it all in savings and still be claimed as long as they didn't provide more than 1/2 their own support with whatever income they received.

[Carl]

No, it is not "according to TurboTax" nor is it according to tax law either. IRS Publication 17 clearly states:
For a student that, on Dec 31 of the tax year is:
-Under the age of 24 and;
-Enrolled in an accredited institution of higher learning (which can include some vocational schools) and;
-Is enrolled in an undergraduate course of study that will lead to a degree or certification and;
-Is enrolled as a full time student for any one semester that started in the tax year;and;
-The student did not provide more than half of their own support for the tax year (Scholarships, grants, 529 funds, gifts from Aunt Mary, etc. *do not count* for the student providing their own support.)
Then:
The student qualifies to be claimed as a dependent on the parent's tax return. There is no earnings limit on what the student can make. The student can earn a million dollars and still qualify as a dependent on the parent's tax return.
Take special note also, that there is no requirement for the parent's to provide any support. Not one penny. The support requirement is on the student, and only the student. There are only two possible ways the student can provide more than 50% of their own support.
1) The student had a job or was self-employed in the tax year and earned sufficient amount to have provided more than 50% of their own support. (If they got sufficient scholarships, grants, 520 funds then it's perfectly possible for the student to have earned a million dollars, and still not have provided more than half their own support.)
2) The student had qualified student loans on which the student was the *primary* borrower, and a sufficient amount of that borrowed money was distributed to the student in the tax year, to have provided more than half of that student's support.

[singardia]

Would they be a Qualifying Child or Qualifying Relative?     There may be a snag in the last semester of school that goes to May and the student moves out to start a job.   There is the "live with you more than half the year" rule that has to be considered.

[KrisD15]

Correct. 

To be a student for the Qualifying Child dependent, the student needs to be in school at least part of at least 5 months, and also live at home at least 6 months, which may include the time the child is way at school. The student must also not supply more than half their own support and meet the age and relationship requirements. 

[singardia]

I ran into that with my son in his last semester as he already had his own apartment.  Therefore, he only lived with me until the second week of May while he was in school.    So I just had him include the lifelong learning credit on his return, but made him give me that money!  🙂

[Dr_Ruth]

So I do not remember this happening last year. Got the 1098T from the school and put those numbers in just as the form said to, and the 135 dollar refund went to 9000 owed.  It looks as though they are taxing the scholarships and grants when that is not supposed to happen.

Please help

[KrisD15]

What numbers do you have in box 1, box 5 and box 6? 

Did you receive more in scholarships that what you paid in tuition? 

[C88]

New to the conversation but came looking because my 1098-T has less information than I expected (and no portion of my scholarships were included on a W-2). Boxes 1 and 6 are empty, and the number in Box 5 is approximately $13,000. The majority of that amount is from a tuition waiver.

Does this sound correct? Unlike the person who wrote before me, my amount owed doesn't jump so drastically, only $150 or so.  Still, an answer is appreciated!

[acep1111]

I'm a different user but with questions about this issue.

I'm a graduate student, over 24, nobody can claim me as a dependent. The number in box 1 is over $4000 greater than the number in box 5 (the number in box 6 is $0.00. Box 7 and the box for at least half-time student are checked. Box 3 is blank and boxes 4 & 10 are $0.00

However, whereas I get a deduction of $4000, all of the income in box 7 is treated as income in my 1040.  How come, I thought the grants and scholarships for tuition, books and other qualified expenses were not taxable. 

Any help would be appreciated (I'm using turbo premier)

[Twobit12]

I'm in the same boat. I dont know what is happening, but I have a feeling the problem resides in TurboTax software. The amount for tuition and fees is set to 0, cannot be changed and the help box tells me it was entered earlier, but it never was. Why cant TurboTax allow me to enter the amounts from the 1098T like any other forms. The total amount of the scholarships went to tuition and fees and therefore should not be taxable (I believe) but the software doesnt seem to be allowing this leap.

[Dr_Ruth]

Twobit12

Later today we are doing two things. We are looking at other tax programs. Turbo Tax made two mistakes on an earlier set of taxes and it cost us quite a bit.  Trying to find one that imports from TurboTax so I do not have to type in the information for all eight grandchildren. 

I am also going to compare this with another grandchild's scholarship form which seems to be working out okay through another college, and see if there is something wrong in one of those extraneous boxes that always seem to need to be checked.

Will write back if I find something

[Dr_Ruth]

This may not do a thing for you but this is what happened to me.  I had run an error check and everything was fine.  I entered the 1098T as it was printed and then the program just BLEW.  Instead of 132 back, she owed 9800.  My mistake (and my husband did find this) not running the final error check again.  It came up with whole new forms to fill out that I did not need previously with my grandson and it walked me through the forms I have never seen before.

ANYWAY, try that and see what happens.  I still have to do some detective work and see and take notes on the new forms in case any of the other children react in the same way.

Yikes