Technically , the student can't "just decide" to claim scholarships as income, but they can allocate scholarship funds to "Other Education Expenses" like room and board or transportation.
If you do this, the education expenses may be used towards a credit.
Enter the 1098-T into your TurboTax program and complete the interview, including the "Education Information" section.
You'll know you finished when you get to "Maximize My Education Tax Break".
If you are eligible for the credit, and if the student's tax on the scholarship will be less than your credit, the program will figure that. The program will also tell you what amount the student needs to claim on his/her return.
Go back through the "Education Interview" a second time to see what the program is allocating towards a credit.
You can also see your credit options by typing letme into the search box and clicking the "Jump to letme" link.
Yes, if the program suggests the student claim income so that you get a credit, the student can file and claim that income even if they have no W-2 or 1099 (they enter it as "Other Income"), although if the amount is below the filing requirements. he/she won't need to.
