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)