Where can I report my fafsa refund?

[Wenh Zhao]

I have received a $4060 FAFSA refund from my college but I don't know where/which form can I file it. 

[JillS56 · Accepted solution]

Did you receive a Form 1098-T from your college?   The normal way this is reported is by entering the 1098-T.   Box 1 of the 1098-t reports the tuition and Box 5 reports the scholarship/grant funds received.   The difference between the two is the excess and should equal the $4060 refund.   This excess will be reported as other income.

[Wenh Zhao]

Thank you so much!!!

I already reported my 1098t. I was confused by box 5. 

I really appreciate it.

[Wenh Zhao]

One more question. Does that count as income?

[PattiF]

It depends, this would count as income if it is more than the qualified education expenses.

See the following excerpt from IRS Publication 970:

A scholarship or fellowship grant is tax-free only to the extent :

• It doesn't exceed your qualified education expenses;

• It isn't designated or earmarked for other purposes (such as room and board), and doesn't require (by its terms) that it can't be used for qualified education expenses; and

• It doesn't represent payment for teaching, research, or other services required as a condition for receiving the scholarship. For exceptions, see Payment for services, later.

Check your 1098-T from the school. If the amount for scholarships and grants is greater than the amount for tuition in box 1 or 2, you may have taxable scholarship or grant income. If this is the case, you will need to enter the 1098-T with your return. You should also enter any other education expenses like books and required school supplies.

Qualified education expenses include the following:

• Tuition and fees required to enroll at or attend an eligible educational institution; and

• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that don't qualify. Qualified education expenses don't include the cost of:

• Room and board,

• Travel,

• Research,

• Clerical help, or

• Equipment and other expenses that aren't required for enrollment in or attendance at an eligible educational institution.

[Hal_Al]

  The normal way this is reported is by entering the 1098-T.   Box 1 of the 1098-t reports the tuition and Box 5 reports the scholarship/grant funds received.  Be sure to also enter your book and computer costs to help reduce the taxable amount.

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, she would only need to report $5000 of taxable scholarship income, instead of $6000.