@magicstar41000-y wrote:
I see. But this "tax-free money" is earned by working as a research assistant. It is better to be taxed then pay the tuition then. I am not clear how this works.
It doesn't matter. For purposes of the tax law, you can't take any tax benefit for an expense you did not pay for with taxable money. You might say, it's better to get (let's say) $12,000 in cash, than $6000 in cash plus a $6000 tuition discount (because the tax on the income would be less than the credit you could claim by paying tuition). But that's not how it works.
There are some situations where you can work around this problem. For example, if your church gave your child a $5000 scholarship, your child would have a choice of applying it to tuition or room and board. If applied to tuition, it is tax free, but you can't claim a credit since you didn't pay the tuition with taxable money. If you apply the scholarship to room and board, it becomes taxable, but then you can claim a tuition tax credit since you are paying the tuition with other, taxable (or after-tax) dollars. (Basically, if you have a pocket with scholarship money and a pocket with your own money, you can decide which expense you pay from which pocket.)
However, it seems in this case that your child's school sponsored the research program and paid a stipend plus a scholarship, and did not issue a 1098 tuition statement. That prevents you from using this kind of work-around, because a 1098 is an absolute requirement (among other reasons). Essentially, your child's school gave you a tuition discount, so you paid less or nothing. That's different than deciding which pocket to pay the tuition from. You never paid tuition, so you can't claim a credit. And if you did pay room and board, those costs are not eligible for college tax breaks.
