The earnings on the distributions are tax exempt if you use them for qualifying education expenses. You should enter the Form 1099-Q which reports the 529 plan distributions in TurboTax first. Then enter your Form 1098-T. When you enter the Form 1098-T you will be asked if any of your scholarship income was used to pay for room and board and to enter the amount. If you used the scholarship money for room and board, then that part of the 529 distributions cannot be used to pay for it, and sometimes that can make a portion of the 529 plan distributions taxable, so you need to review your entries there.
Also, if your scholarship income is more than your education expenses, that can make a portion of your 529 plan distributions taxable, since the scholarship money paid for your education expenses.
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