I am a student at U of O, and the scholarship is automatically deducted from my bill by the University, and is listed on the 1098T. Even though I am a dependent, I have to enter the 1098T into my taxes, otherwise I will be taxed on the 529 which was paid directly to U of O.
IRS Topic 421 at https://www.irs.gov/taxtopics/tc421 states:
Tax-Free
If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:
- You're a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
- The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.
