@magicstar41000-y wrote:
Thank you again for your detailed explanation.
Yes, It's for an engineering degree. Like you mentioned, the university stipend (paid to the student) about $30,000- amount on the w2. The students are required to perform research to get their graduate degree. The school also "charges" about $X in tuition(Is box1 the tuition amount?) . On the student pay stubs, they showed the tuition amount, what's left was student's income. (confusing)
"In this situation, the stipend is taxable income, but not subject to social security and medicare tax." - That's correct, the w2 earnings.
"The tuition waiver essentially does not exist. The school pays tuition to itself, and there is no way you can use the waived tuition to claim any kind of educational tax credit, either in the parents name or the students name." - That's fine. Why the the school issue a 1098-T to complicate the issue?
I entered the information correctly on form 1098-T in Box 1 and and 5 as it asked. It taxed on the scholarship amount? Confusing!
Thank you again!
You may need to contact the school. The 1098 for now shows that the school received $50,000 in tuition and the student received $30,000 in fellowship income. If you enter that correctly (I tested it in my program), then Turbotax will think that the student personally paid the other $20,000 of tuition, resulting in eligibility for the Lifetime Learning credit. That is incorrect in your situation no matter what the 1098 says, and I don't know why it is written that way. I also could not get the program to charge tax on the $30,000 of box 5 income. You may have checked a box or answered a question that makes the program think your total tuition was $20,000 which makes the $30,000 (the amount over tuition) taxable. But that is also not the case for your situation.
I also don't know what you mean by "the $50,000 is on the pay stub". But it doesn't really matter what is on the pay stub, the school may just be trying an awkward way to illustrate the total cost/benefit of the graduate program. Only the W-2 counts because that is what is reported to the IRS.
What I would do is enter the W-2 only and ignore/delete the 1098. Your child is not eligible for any tuition tax benefits unless they paid tuition out of their own pocket or from loans, no matter what the 1098 says.
Then going back to your original question, if your child is domiciled in Mass (permanent residence) and is a student in PA, they file a PA non-resident income tax return to report and pay tax on their PA-source income. They will likely owe quite a bit if there was no PA withholding. Then they file a Mass resident return to report and pay tax on all their world-wide income (the graduate stipend plus anything else). Mass will give them a credit for taxes paid to PA, so they will probably get a refund from Mass. The credit works like this: suppose the PA tax on the income is $1000 and the Mass tax is $1500 (Mass taxes are higher than PA). Your child will pay $1000 to PA, will get a $1000 credit on the Mass return and pay the leftover $500. If their withholding is higher, they get a refund.
Your child can also contact the payroll department at their school and add PA withholding or change from Mass to PA withholding if they want, for next year.
@Hal_Al Do you have any thoughts on how the school is reporting tuition and the graduate stipend, and why the taxpayer might be showing $30,000 of excess scholarship income when entering the 1098?
