Turbotax error with taxable scholarship income

[kanga1]

For three years in a row, I've encountered a tax flaw in Turbo Tax when dealing with education scholarships.  If a student allocates scholarship money to pay for room and board, IRS Form 8863 instructions clearly say to report that amount with wages and that it is taxed as earned income.  However, Turbo Tax treats it as unearned income (dividend/interest) and incorrectly calculates the dependent student's tax for that scholarship based on parent's earnings, triggering Form 8814.  I've searched the website to see if there is a place to report errors but can find none.

[NCperson]

I don't think so.... I just tested your 'bug' in TT (desktop) and could not replicate this condition.

I set up a 18 year old student tax return who is a dependent on his parents return, and noted on the 1098-T that Box 5 had $5,000 (with zero in Box 1)

TT came back and posted $5,000 under 'wages' on form 1040, took a standard deduction of $5350 and said the student owed no taxes.  That is all working as I would have expected it. 

[clealram7733]

I have a similar situation where my daughter has $7,520 in taxable income from fellowship grants allowed to pay for room and board expenses and she doesn't owe any taxes. Does she still need to file a tax return since she doesn't have any other income?

[ThomasM125]

The taxable scholarship income will show up as wages if entered properly in the program.

Your daughter probably does not have to file a tax return, but you can use this online worksheet from the IRS website to insure that she doesn't have to file a federal tax return:

https://www.irs.gov/help/ita/do-i-need-to-file-a-tax-return

[Kat011]

The people trying to reproduce the errors are not doing it correctly. For the 1098-T you should have amounts in box 1 and 5 such that the scholarships mostly or completely cover the tuition and fees. THEN the student elects to treat 4000 of the scholarships which would NORMALLY be tax-free as taxable income in order to claim the American opportunity credit by answering the appropriate questionnaire in the student section indicating that the amount of scholarships spent on room/board/etc was actual amount + 4000. This is correct and above the board, and even indicated by the IRS as an often unused tactic for students to utilize more of the education credits.

HOWEVER, now TurboTax is not treating ANY of that amount in the "scholarships spent on room/board/etc" as earned income even though by IRS code IT IS since it is taxable income.

[Hal_Al]

@Kat011  I just tried it (Windows desktop Deluxe).  It works fine.