When I put in my 18 year old daughter's 1098-t in my wife and my taxes it asked how much from her scholarships and grants were for room and board. When I put in the dollar amount is said she would need to claim that amount as income on her taxes. Does that mean she would just use the same 1098-t form with her taxes? It seems odd that we would both use the same form on both of our taxes. We claimed her on our taxes so it makes sense to use it with our taxes and it gives us a nice refund, but when we put it in hers she would owe since she only had a summer job and didn't have much for taxes taken out. It puts the amount as unearned income. So do we both use the form or is the money used for room and board reported somewhere else on her taxes?
No, she does not report the 1098-T, she just reports the scholarship amount as income. The tax, if any, that she will pay on the scholarship income used for Room and Board should be less than the credit you receive. Although
there is no FICA (Medicare and/or Social Security) tax due on the income, the
IRS does state that it be reported on Line 7 of a 1040.
The instructions below are for the student to use when there is no 1099-MISC involved:
Have the student sign in and start (or continue) their return
Be sure that the student selects “Someone else can claim me” and “Someone else will claim me” so that they do not take their exemption. The person that claims the student as their dependent takes the student’s exemption.
- Click on Federal on the left side-bar
- Click Deductions & Credits along the top
- Scroll down to “Expenses and Scholarships (Form 1098-T)” under the Education section as if you were going to enter a 1098-T and click Start
- Add the student if necessary
Answer the various questions about the student, including the name of the school, but to avoid confusion, mark “NO” to “Did you get a 1098-T from the school?” and “YES” to “I qualify for an exception” (screenshots 1 and 2)
Continue through the screens using the information from the 1098-T to fill in the address and Federal ID number for the school
- On the screen for amount
paid to the school enter 0
- “Go to another school?” Answer “NO”.
“Did you pay for books
… Answer “NO”
- “Scholarships and Financial Aid” click Continue
- “Did you receive a Scholarship or grant?” Answer “YES” and a drop down will open.
On this screen enter the taxable amount the student needs to report and click Continue (see screenshot 3)
“Did the Aid Include Amounts Not award for this year’s Expenses?” Answer “NO” and continue through the interview screens until done. You will get to the screen that states the student “Can’t Claim the education Deduction or Credit”. (but we knew that) Click Continue.
The taxable amount will be properly reported on Line 7 of the 1040 or 1040A with SCH (Scholarship) noted on that line. (see screenshot 4)
No FICA or Self-Employment tax is added since it is not treated as earned income. (see screenshot 5)
Next, this is what the IRS says:
According to the IRS:
“If your only income is a completely tax-free scholarship or fellowship grant, you don't have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship grant is taxable and you are required to file a tax return, report the taxable amount as explained below. You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, ask the payer for a corrected one.”
The trick here is that it says "completely tax-free scholarship" but if the student is reporting it as income, it is not necessarily tax-free.
Here are the filing requirements for a dependent:
A return must be filed if:
unearned income was over $1,050, or
earned income was over $6,300, or
earned plus unearned income together total more than the larger of
• (1) $1,050, or
• (2) total earned income (up to $6,300) plus $350.
So here is where it gets funny. The scholarship income is not considered earned income, but if there is no tax, it is "completely tax-free scholarship" and he doesn't have to file.
FOR EXAMPLE: say the student needs to claim 5,000 in scholarship, it is not earned, but it won't be taxed (if that is his only income) SO.... looks like he would need to file because he falls under "Unearned income was over $1,050", but no, in this case he does not have to file a return because it is a completely tax-free scholarship. This income is confusing because it is treated as neither earned, nor unearned.
Got it? Seems confusing, but read, drink coffee, read it again. You can use the directions above, enter the amount on a return for the student. If the only income is the scholarship, and there is no tax due, the student does not need to file.