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ldehr
New Member

Scholarship is taxable income

Turbo Tax is telling me my son's scholarship is taxable.  The Scholarship was used to pay tuition.  I had 529 withdrawals however there were more than enough expenses to cover the withdrawals and tuition.  This is the first of the 4 years they are calling it taxable.  

2 Replies
AmyC
Expert Alumni

Scholarship is taxable income

What are your 1098-T box 1 and box 5 numbers? Maybe the problem is what are qualified expenses versus the expenses of college.

Please see:

What are qualified education expenses for the American Opportunity and Lifetime Learning credits?

Why is my scholarship taxable?

 

 

You can actually remove the 1099-Q from your taxes entirely if all of the distribution was used for qualified expenses and you do not have any taxable distribution to report this year. The IRS does not require you to report the information when it is not taxable.  

 

For more information about the 1099-Q click on this link: Guide to IRS Form 1099-Q.

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Hal_Al
Level 15

Scholarship is taxable income

TurboTax (TT) assumes you are claiming a tuition credit and allocates some of the tuition to cover that.

That  usually means some of the scholarship is taxable or some of the 529 plan distribution is taxable.

 

Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit

 =$3000 Can be used against the 1099-Q (usually on the student’s return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)

 

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

 

Go through the entire education interview until you reach a screen titled "Your Education Expenses Summary".  Click edit next to the student's name. That should take you to a screen “Here’s your Education Summary”. Click edit next to “Education Information”. When you get to the screen titled “Amount Used to Calculate Education Deduction or Credit”, verify the amount you want to use or change it.

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