Who files 1098-T?

[global77]

I am a college student and file my own tax return. I am also a dependent on my parent's tax return. My 1098-T, should be included in whose tax return, my parent's or mine, or include in both tax return?

Just checking to make sure. Thanks.

[DoninGA]

Since you are being claimed as a dependent on your parent's tax return, the Form 1098-T is entered on their tax return.

[Hal_Al · Accepted solution]

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

So, for the tuition credit, a dependent's 1098-T goes on the parent's tax return.  For taxable  scholarship situations, it goes on the student's return.  Sometimes it goes on both, with adjustments, when needed.

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There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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.

The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970 even has examples of how to do the “loop hole”.

[chslalom]

Followup question....

Daughter is on scholarship at a school in OH.  She is my dependent and I live in IN and she is an IN resident according to school and how I am claiming her for taxes.  She earned about $6000 last year for a summer job in OH and had normal taxes withheld.  Her 1098-T has $38K in box 5 and $23K in box 1...hence a difference of $15K...a chunk of this $15K is for her room and board for the entire year living off campus.  

Question: Who claims the 1098-T...so far it is on my student's tax filing...it is showing she will owe approx. $400 to federal and over $800 to IN (since an IN resident and non-resident of OH).  If not for the 1098-T she would get all of her federal and likely OH withholding back.  Seems crazy!  What am I missing?  Does the 1098-T go on my return?  If so, would I as the parent owe taxes on this 1098-T difference (assuming all else equal).

Thanks.

[Vanessa A]

It should go on her return and yes, she owes, because the scholarship that is in excess of her tuition is considered taxable income.  Only the amount that was used for Qualified Education Expenses which would be tuition and materials, equipment and books required for the courses but bought elsewhere such as a laptop.  If she bought a laptop or calculators or books, this can lower her taxable amount of scholarship. 

Any amount used for room and board or travel is NOT considered educational expenses.  This portion is 100% taxable. 

[Hal_Al]

Q.   Seems crazy!  What am I missing?  

A.  What you are missing is that room and board are not "qualified" educational expenses (QEE).  Scholarships that pay for QEE are tax free. Any additional scholarship amounts are taxable.  The $15,000 taxable portion can be reduced a little by any book and computer expenses, not shown in box 1 of the 1098-T. 

Q. Who claims the 1098-T?

A. Both of you. She enters it to pay tax on the excess scholarship. You enter it to claim the tuition credit (unless your income is too high to qualify). You actually want to increase her taxable scholarship to $19,000 to allow you to claim $4000 of QEE for the maximum credit (see "loop hole" explanation above).  The credit is a maximum of $2500, so the family comes out ahead, even with her paying more tax.

The TurboTax (TT) interview, in both your return and hers can theoretically handle this, But it can get complicated and mistakes are frequent.  The simple work around is you enter the 1098-T, on your return, with $4000 in box 1 and box 5 blank. On her return, she enters the 1098-T with 0 in box 1 and the calculated taxable amount in box 5 ($19,000 unless you can lower it with some book and computer expenses).

[chslalom]

I get it...the difference between the parent's return and the student's return is still $15K and that is OK?

[chslalom]

Also, is the $4000 on my return going to get me back an actual additional $2500 refund or is it just a $2500 deduction at that point?

[Hal_Al]

IN & OH are reciprocal states. If OH state tax was mistakenly withheld, she can file an OH return to get a refund. 

However the reciprocity agreement does not apply to local city taxes. You are not required to file an OH local city return, but you are also not entitled to a refund of the city withholding (box19 on your W-2), unless there was an error in the amount.

Most  IN counties (but not the state)  allow a credit, or partial credit for tax paid to an OH city. That will come up in the IN state interview. (For details, see:

https://ttlc.intuit.com/community/state-taxes/discussion/i-see-no-separate-question-for-school-taxes...

[Hal_Al]

It's an actual $2500 in your pocket, unless your tax liability (line 18 of form 1040)  is less than $1500.  It's only 40% refundable (you get a minimum of $1000).