The short cuts are:
-On you return, enter the the 1098-T with $4000 in box 1 and box 5 blank.
-On his return, enter $963 (4963 - 4000 = 963) in box 1 and $10,120 in box 5. $9157 (10,120 - 963) will be taxable. If he has any books and/or computer expenses, add that to the box 1 amount. If that is his only income, he will pay no tax, since the total is less than $13,850*. In fact, at that amount, he is not even required to file a tax return*. But, you want to have him file, just to document the reporting of the extra income.
*Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400). It is not earned income for the kiddie tax and other purposes (e.g. EIC).
