tax credits

Forum|Forum|13 days ago
August 12, 2026
6 replies
85 views

what is a good amount to pay toward student loan interest to ensure a decent tax refund come tax season. Also wondering about if I receive scholarships then how would the irs look at that

DoninGA

Level 15

Paying student loan interest does not create a special bonus refund; it simply lowers your taxable income by up to $2,500 via the Official IRS Student Loan Interest Deduction. To maximize this specific tax savings, pay up to $2,500 in interest per year. Scholarships are tax-free if used for tuition, fees, and books, but taxable if used for room and board.

Hal_Al

Level 15

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. Room & board are not QEE.

If you are the parent o a student an entering the 1098-T, on your return, TT will advise you that your student has taxable scholarship income to be reported on his/her return. It will not (and should not) enter the taxable scholarship on your (the parent) tax return.

NCperson

Level 15

think of scholarships this way:

the IRS considers all scholarships as taxable income to you. You must report all scholarship inome whether or not it is recorded in Box 5 of Form 1098-T.

However, you can reduce that taxable income, dollar for dollar, by any Qualified Educational Expenses (think tuition and books) that are required for class. That would be anything listed in Box 1 of Form 1098-T plus any QEE not part of the form (think books or a computer not purchased from the school).

clairemiller069

Level 1

The discussion on student loan interest and scholarships is really useful. One point that stands out is that scholarship money isn't automatically tax-free—the tax treatment can depend on how the funds are used and whether they cover qualified educational expenses. The distinction between tuition, books, and expenses such as room and board is especially important for students planning their education costs.

NCperson

Level 15

for many students, they have minimal income, so even if the scholarships exceed the QEE, that remaining amount that is taxable income doesn’t necessarily cause students to pay INCOME tax. If that remaining amount plus their wages remain below the standard deduction, which in 2026 is $16,100, there is no need to file a tax return or pay any tax. State rules may vary.

Hal_Al

Level 15

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $16,100 filing requirement (2026) and the dependent standard deduction calculation (earned income + $450, up to $16,100). It is not earned income for the kiddie tax and other purposes (e.g. EIC). For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

Taxable scholarship goes on line 8r of Schedule 1, from which TurboTax treats it as hybrid income.