Is my impression correct that you MUST pay taxes on grants or scholarships in excess of expenses for an academic session as reflected by Form 1098T? If Box 1 lists $2,000 in "Payments Made," and Box 5 has $5000 for grants or scholarships, does the $2,500 surplus attract mandatory tax liability? Thanks!
The simple answer is: when box 5 exceeds box 1 by more than $12,200.
Everybody gets a (potential) $12,200 standard deduction, even student-dependents*. So, if you have less than $12,200 total taxable income, you will owe no tax and do not even have to file a tax return
*There is an exception for dependents with investment income (interest, dividends, capital gains and taxable 529 plan distributions)
Yes, if Box 1 is less than the amount in Box 5 then the excess amount is considered taxable income.
There are other school expenses that you may deduct that do not appear on form 1098T they are
- Fees the school charges
- Cost of books and supplies for classes taken
By adding these other expenses to your return you reduce the amount of scholarship that is taxable.
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