Q. Why does my Scholarships/Grants on my 1098-T count as taxable income even though I used it only on tuition in my 2023 school year?
A. The usual reason is that TurboTax (TT) has allocated some of the tuition to the tuition credit, if not on your return, then for your parent's return. The 2nd reason, you entered something wrong.
Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free. Scholarship amounts that exceed QEE is taxable income, on the student’s tax return.
If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will treat the difference as taxable income, unless you enter additional QEE at books and other expenses.
Why are you even entering the 1098-T?
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.
If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this).
