You have ~$1500 of taxable income to report.
By law your employer can only give you $5250 maximum, tax free. If your tuition was less than that, and you employer reimbursed it all; it’s safe to assume it does not need to be reported. But in your case about $1500 did not go to tuition or other qualified expenses (fees, books and other course materials including computers), so it is taxable income.
If you work your way through the education expenses section, TurboTax (TT) should end up adding $1500 to line 7, of form 1040, with the notation SCH.
Or you can use a simpler work around. Do not enter any education expenses and just enter the $1500 as income. Report the income as misc line 21 income. In TurboTax (TT), enter at:
- Federal Taxes tab
- Wages & Income
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income - Enter the number and "taxable scholarship" or "excess reimbursement" for description.
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There is a tax “loophole” available. You can report your scholarship and reimbursement, up to the amount needed to claim the American opportunity credit, as income on your return. That way, you can claim the tuition credit on your return. You can do this because that much tuition was no longer paid by "tax free" scholarship.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 2. 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, she can claim $4000 of qualified expenses on her return.
