TT counting scholarship as income

[CPK4]

hi, 

My daughter is 20 and claimed as my dependent.

She earned $13, 492 in 2019 working.

Her 2019 return is putting all $15k of scholarship as income.

IRS Worksheet 1-1 in Pub. 970 calculates $0 is taxable.

Is there something wrong or am I missing something?

[KatrinaB48]

If you use your scholarship to pay for any of these, it counts as income and the amount paid is taxable:

• Room and board
• Travel and incidental expenses
• Any fees, books, and supplies or equipment that aren't required for your courses

If you're getting a degree at an eligible school, your scholarship is tax-free when used for:

• Tuition and fees
• Fees, books, supplies or equipment required for your courses
• Any scholarship or fellowship for services received under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program

For example, if you used your scholarship to pay for tuition and room and board, you would be taxed on the room and board payment but not on tuition.

[CPK4]

Thanks Katrina. The money is tuition only. It's awarded directly by her college and reduces our bill.

How do i stop turbotax from counting it as income on line 1 of 1040?

[DanaB27]

There is a question that asks "Pay for Room and Board with a Scholarship or Grant?" when you answer "no" it should attribute all of the scholarships to tuition.

1. Log into TurboTax
2. Click "Federal" in the menu on the left side
3. Click on "Deductions &Credits" 
4. Scroll down to  "Expenses and Scholarships(Form 1098-T)" and click "Edit"
5. Click "edit" next to the student's name
6. Scroll down to "Scholarships/Grants (for all schools)" and click "edit"
7. Continue through the questions until "Pay for Room and Board with a Scholarship or Grant?" and answer "No"

[Hal_Al]

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return.

If you know that none of her scholarship is  taxable, just don't enter the 1098-T on her return. 

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That said, there is a tax “loophole” available. 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 $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.