You indicated that the amount in Box 1 is $30,000. Box 1 is the total payment that an eligible educational institution received from any source for qualified tuition and related expenses minus any reimbursement or refunds made. Please see the Instructions for Forms 1098-E and 1098-T from the IRS website.
Because there is a scholarship of $10,000 in Box 5 and $30,000 in Box 1, TurboTax calculated tax on $10,000 of your 529 plan withdrawal because the educational institution reported that total amount of received from all sources is $30,000. Since you mentioned that the total cost is $40,000, please reach out to your educational institution and request a corrected copy of the 1098-T.
Please see the TurboTax article Guide to Tax Form 1098-T: Tuition Statement for more information.
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