Based on the facts that you have presented, you do not have any taxable income. University tuition remission is not the same an an employer tuition reimbursement plan. It's the same as a scholarship. And since that "scholarship" was used to pay qualified expenses (tuition), it is not taxable. See IRS Pub 970. If it was taxable an employee benefit, your employer MUST enter it in box 1 of your W-2.
That said, we'll go on to your question.
Q. Can I directly pay the IRS the tax I owe without revising the W-2? How can I prepare it in TurboTax?
A. You use a workaround. There are several. The simplest is to enter your 1098-T with box 1 blank and $34,960 in box 5. The income will go on line 8r of Schedule 1, as taxable scholarship.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income.
If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2023 expenses".
Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS
Q. As a PA resident, do I still need to pay state tax for the graduate tuition remission?
A. Yes. The taxable income on the federal return will automatically transfer o the state return.
