Q. My daughter's 1099-T has a larger amount in Box 1 ($6000) than Box 5 ($2000). If she isn't eligible for any educational credits, does she need to include this info on her taxes? Does it create $2000 of income?
A. No. Scholarships are tax free, if the money was used to pay for qualified expenses. Sine box 1 is more than box 5, it's assumed the $2000 scholarship paid part of the $6000 tuition. Tuition is a qualified expense.
You say "she isn't eligible for any educational credits". Most students are not eligible. So, in most cases, the parent claims the credit, because the student is their dependent. A parent can be disqualified from the credit due to income too high, in which case, the credit is simply lost.
