Scholarship and Regular Tuition Payments in mismatched calendar years

[gems7798]

@Hal_Al

Our oldest is now a senior in college, and we're helping her with her taxes.  This will be the 4th time for us to claim the AOTC for her and with your help in the past we know how to do that smoothly. I don't feel as confident on the student's side of things. I know the 1098-T should show what charges were PAID in a calendar year but may incorrectly show a different amount, which we had to work through in the past. What I don't appear to have addressed in the past is that the scholarship money for spring semester is "paid" in January regardless of when charges hit or the other payments are made. She usually had enough costs to keep the scholarship income fairly minimal, so we never even looked into workarounds to denote scholarship $ was for a previous year. (And I'm not sure I fully understand how that works. Jan scholarship money needs to be accounted somehow; I know it's not "free" money.)

A tuition payment was made in Dec '22, but the tuition wasn't even charged yet in Dec '23. So for calendar year 2023, there is scholarship and grant $ for two semesters but only charges & payment for one. Is it correct to believe there isn't a way to help the situation? Or at least there isn't because we haven't dealt with the Dec/Jan mismatch with scholarship money in the past, so we can't do that now?

If we had another student in the future at the same school, I would make sure we made payments in January, the same as the scholarship, govt grants, and loans. However, our second student is at a different college, and I don't think we can avoid the problem. Payment has to be made in Dec for spring semester, but it's looking like scholarships, govt grants, and loans all post in Jan. Is there a best method for approaching this? If addressing the Dec/Jan mismatch for the second child needs to be another thread, I understand.

Thank you!

[Hal_Al]

The Dec/Jan mismatch is a common problem in this forum.  Here's my standard answer:

 The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2023 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

[gems7798]

I knew that from past discussions, but I don't think my brain followed to all the implications. That a 2023 expense, is something paid in 2023, not meaning a semester in the 2023 calendar. Would this be possible as an example?:

College charges $10,000 in Dec. 2022

Student pays $5,000 in Dec. 2022

Scholarships, grants, and loans of $6,000 in Jan. 2023

Refund check of $1,000 issued late Jan. 2023

Could we have claimed $5000 of the charges as expenses paid in 2022 to match the student payment of $5,000, and then $5,000 of the expenses as paid in 2023 to go with the $6,000 in scholarships, grants, and loans? But if in 2022 we claimed all the expenses charged in 2022 as paid in 2022, then the full force of the scholarships and grants hit in 2023 without the expenses to help offset them.  Do I have that right?

[Hal_Al · Accepted solution]

Q. Could we have claimed $5000 of the charges as expenses paid in 2022 to match the student payment of $5,000, and then $5,000 of the expenses as paid in 2023 to go with the $6,000 in scholarships, grants, and loans?

A. Yes, could and should, because you know that was when the $6000 was actually paid. The school was wrong to put the extra $5K in box 1 of the 2022 1098-T.  But, we see it all the time. They post the 2022 "charges" to box 1 and they're supposed to post the payments.

Q. But if in 2022 we claimed all the expenses charged in 2022 as paid in 2022, then the full force of the scholarships and grants hit in 2023 without the expenses to help offset them.  Do I have that right?

A. Yes. Or more accurately, probably yes.  It wasn't "wrong" to count it for 2022, it just wasn't as right. You coulda done it differently, last year.  And you have the option of amending last tear's return.  But, one way or the other you have to account for the scholarship.