I’m so confused on this 1098T

Forum|Forum|4 months ago
January 21, 2026
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This is our 1st year dealing with this 1098T. Box 1 has 2859.15, Box 5 has

10801.65. My daughter has W2 income of around 14000. What goes on her return and what goes on our return? Is it beneficial for us to put the entire form on our return or go on her return?

Scholarships

Hal_Al

Level 15

It is confusing, with many different scenarios.

There is a tuition credit available that is usually claimed by the parents, if the student is their dependent. But, in your case, the student has more scholarship than tuition.

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. Room & board are not QEE.

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.

If you are 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 tax return.

There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all her scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on her return. That way, the parents (or herself, if she 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 conditions of the grant (the scholarship is "restricted") are that it be used to pay for qualified expenses.

Using your numbers, as an example: Student has $10,802 in box 5 of the 1098-T and $2859 in box 1. At first glance she has $7943 of taxable income and nobody can claim the American opportunity credit. But if she reports all $10802 as income on her return, the parents can claim $2859 of qualified expenses on their return. The AOC is very generous (100% of the first $2000 of tuition and 25% of the next $2000) so the parents get more back than the student pays in tax.

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 $9802 of taxable scholarship income, instead of $10,802 (or the parents could claim another $1000 for the AOC).

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”.

TurboTax can theoretically handle all that when you follow the interview carefully. But, it goes smoother if you use a work around in TurboTax (TT). Advise if your student's scholarship is NOT restricted and you need instructions on a workaround.

livalotAuthor

Level 2

Thank you. Yes she has around $1000 in additional expenses that were not included on the 1098. The actual tuition amount plus lab fees, lab supplies (purchased on Amazon) books and a laptop were purchased. There were no restrictions on the scholarships. She used the remaining funds for rent for off campus housing. So I would need to add the excess on her return and enter no expenses and then enter just the expenses on mine or the entire 1098t?

Hal_Al

Level 15

You can both use the 1098-T to enter the expenses. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your student should use the 1098-T because it makes entering scholarship income go smoother and puts the income in the right place on the tax forms, line 8r of Schedule 1.

TurboTax can theoretically handle all that when you follow the interview carefully. But, it goes smoother if you use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $3859 (2859 + books etc) in box 1. No other numbers. You only enter the 1098-T to get TurboTax to check the proper box on form 8863. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. The 1098-T that you enter in TT is not sent to the IRS.

Enter the 1098-T, exactly as received, on the student's return. Enter book and computer expenses separately. In his interview, you should eventually reach a screen called "Amount used to calculate education credit" (or similar wording). Be sure the amount in that box is $3859 (the amount you used on your return). You must complete the “education information” subsection to get that screen, That will put all his excess scholarship as income on his return (line 8r of Schedule 1).

Be advised some people are saying they're not getting the "Amount used to claim the tuition credit" (or “Education Expenses used for a Tax Credit”) screen on the dependent’s interview. Check the student information work sheet (part VI, line 17) to verify it was entered.

There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship and enter the 1098-T, on his return, with 0 in box 1 and the taxable amount in box 5. In that case the amount in the "Amount used to claim the tuition credit" box is 0 (if it comes up).

Before doing that, it may be helpful to first delete the previously entered 1098-T and start over, so that there's not conflicting data still hanging around.