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I am trying to do my daughter's tax return. My daughter in college received a $1000 scholarship for which we were given a 1099-MISC for $1000 of miscellaneous income. That scholarship check was given to the college which is also reporting it on the 1098-T. When I look at Schedule 1 for Form 1040 and the "Supporting Details" page, I am being taxed twice on the $1000 as it counts it as "Form 1099-MISC" and it counts it in the "taxable scholarships" line as well. How do I remedy this? I'm afraid if I don't report the 1099-MISC, I'll be in trouble and the same if I subtract the $1000 from the 1098-T as it will not match what the college sent me.
I should also say that this money will be taxable as her tuition/fees were covered by other scholarships and she has no other qualified expenses.
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The 1099-Misc scholarship was used to pay for tuition, it is not taxable income.
If your daughter did not earn any income other than receiving the 1099-Misc scholarship income, she does not have a tax-filing requirement. If you support her financially and you need to claim her on your tax return as a dependent. If you qualify for the educational credit, enter the 1099-T form on your return. You don't add the 1099-Misc on your return and you don't subtract the amount on Form 1099-Misc from Form 1098-T.
How much is in boxes 1 and 5 of her 1098-T? Does she have any other income, other than the 1099-Misc and the scholarship in box 5 of the 1098-T? If the amounts are low enough, she may net be required to file a tax return.
Be advised that 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, instead of $6000.
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