Get your taxes done using TurboTax

If your w2 income is on the 1098-T, select yes and enter the income.

As a graduate student, you want to claim the Lifetime Learning Credit, up to $2,000. This credit is nonrefundable so it reduces your tax bill. The credit is 20% of the first $10,000 you spend on education. The tax rate on the same income should be lower. You are generally better off to include scholarship as income and capture the credit.

For example:

Box 1 is $10,000

Box 5 is $25,000

We want $10,000 to go towards college expenses for maximum credit. That means the entire box 1 was paid out of pocket and the entire box 5 was income towards everything else. 

The IRS has a great brochure that explains how scholarships and tax credits interact.