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sharonandsean
Level 2

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

Basics.

Tuition and room/board= $79k

Scholarship/financial aid=$20k

Out of pocket paid to school=$59k ($18k of which came from 529).

TurboTax says: "XXX's education assistance counts as income ... they exceed education expenses"

But they obviously don't. Any thoughts?

1 Best answer

Accepted Solutions
Hal_Al
Level 15

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

Of course it's not taxable.  There's an error in TurboTax (TT).  You have two choices: go thru the interview again and find the error(s) or delete the student and start over.

 

In the interview, you will be asked if any of the scholarship was used for room and board. Any number you enter at that box will be treated as taxable

 

If you know what the projected outcome is, I recommend short cuts in the TT education interview.  I assume, you know that none of your 529 distribution is taxable  because it all went for qualified expenses. You know that none of your daughter's scholarship is taxable because it all went for qualified expenses.  You know whether  you are eligible for a Tuition credit.

 

Just don't enter the1099-Q, because it all went for qualified expenses. 

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 

 

In claiming the tuition credit, just enter the 1098-T and don't bother entering any other numbers. They won't change anything. 

View solution in original post

8 Replies
Hal_Al
Level 15

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

You cannot lump tuition and room and board together as college expenses.  Break them out separately:

  • Tuition & fees
  • Room and board
  • Books & course materials
  • computers 

What is in box 1 and box 5 of the 1098-T?

 

Scholarships that pay for room and board are taxable.  Scholarships  that pay for qualified educational expenses (QEE)(tuition, fees, books and course materials) are tax free.  Room & board and computers are qualified expenses for a 529 distribution.

 

If you are eligible, you also want to designate some expenses for claiming a tuition credit.  Is your student an undergrad or grad student?

That said, you have probably entered things wrong.  The interview is complicated.

KrisD15
Expert Alumni

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

You can't lump tuition with room and board. 

Funds (scholarships) used to pay tuition are tax-free. 

Funds used to pay room and board are taxable income for the student. 

 

I suggest you go through the Education section once more from beginning to end, it is quite a lengthy interview. 

One of the last screen will say "Maximize My Tax Break" 

The program should show a list of the expenses and scholarships it is using for the calculation. 

You may also type   letme   into the search and then click the "jump to letme" link that comes up. 

This will take you to a screen where you may be able to change your selection of an education credit

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sharonandsean
Level 2

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

The 1 and 5 boxes are $59k and $20k respectively. I don't see any way that $20k is taxable to my daughter.

Hal_Al
Level 15

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

Of course it's not taxable.  There's an error in TurboTax (TT).  You have two choices: go thru the interview again and find the error(s) or delete the student and start over.

 

In the interview, you will be asked if any of the scholarship was used for room and board. Any number you enter at that box will be treated as taxable

 

If you know what the projected outcome is, I recommend short cuts in the TT education interview.  I assume, you know that none of your 529 distribution is taxable  because it all went for qualified expenses. You know that none of your daughter's scholarship is taxable because it all went for qualified expenses.  You know whether  you are eligible for a Tuition credit.

 

Just don't enter the1099-Q, because it all went for qualified expenses. 

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 

 

In claiming the tuition credit, just enter the 1098-T and don't bother entering any other numbers. They won't change anything. 

View solution in original post

connexcindy2016
Level 2

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

I am also finding an error in TT on this. I did not enter an amount of $0 for my daughter's tuition. It somehow skipped that. When I go through the items, OR go through the interview again, I cannot re-enter it. It tells me I "already entered it" - with no "edit" button available. Is the only way to delete my student and start again?

 

Hal_Al
Level 15

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

@connexcindy2016 

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 the section you want to change; tuition, in your case (click edit next to the school name).

sharonandsean
Level 2

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

Thanks.

I went to the "Forms" section and it appears that is all filled out correctly by TT including the fact that nothing is taxable. Apparently the TT software is not reading the Forms correctly and is giving a bad warning error. If TT staff are reading this, I'd be happy to provide screen shots if needed to get it fixed.

connexcindy2016
Level 2

TurboTax says scholarship of $20k is TAXABLE for daughter even though college cost was $79k

Thank you @Hal_Al , @sharonandsean . I tried but found I had to go back and add my daughter again after attempting to put the correct numbers in the form.  There are some good articles explaining how (1098-T) Box 5 scholarship amounts can be used as tuition - and tax-free while properly assigning some of the scholarship funds from Box 5 also to the student's taxes. Some of the scholarship monies can be used, these articles explain referring to IRS documents, for the university Rent and Board - which is not tax-deductible. That can then be put on the college son/daughter's taxes. This year the standard deduction for them would be (? $12,200?). My understanding is that anything less than that on their taxes would mean they owe no monies.  This is my problem with having a full-time, dependent college student: Each year TT changes the way it does the interview. The questions are asked differently each year.  In previous years one needed to know the information above and put the proper amount for tax-deductible amounts (tuition, required books and fees, etc) under the parent. TT would then assume the portions that were not tax-deductible would be placed on the student's tax return without directing the user to do so.  I cannot figure out what TT is doing this year.

 

If TT is reading any of this, may I suggest that TT give a brief overview of how they will calculate the items using the requested information before the interview begins? Then I can answer interview questions properly knowing they are using all information needed by the IRS.  For example, they ask "Was any of <student name's>  Financial Aid  Already included as income?" However, TT then proceeds to ask if it was on a W-2 or a 1099. Of course, many students will not have this form but will need to claim it under the student's taxes in any case. Will there be yet another section in the interview asking about Room and Board which does not show on a W-2 or 1099? I shall soon find out! Then I will need to go back and correct any false assumptions I made on what TT would include or not include in this year's interview!

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