"Clearly, Tuition paid is the amount paid after applying Scholarships and Grants
That's not right. Box 1 of the 1098-T is the total amount of qualified education expenses received by the school from all sources including scholarships, grants and money paid out of your pocket or your parent's pocket.
Box 5 of the 1098-T is the amount of all 3rd party income received from all 3rd party sources and that does not include money paid out of your pocket or your parent's pocket.
If the amount in box 5 is greater than the amount in box 1, then the student will pay taxes on the difference, and that difference will be taxed at the parent's higher tax rate.
