Hello,
I am looking for help on handling the following situation. I will use round numbers for simplicity of the example.
Taxpayer is in the air force reserve and took two graduate courses in 2020. The VA directly paid the accredited institution $6,000 ($3,000 per course) for tuition. The taxpayer then dropped a course and the college refunded the taxpayer $3,000. The taxpayer then refunded the VA the $3,000. The 1098-T received from the college shows $3,000 in Box 1 (Payments Received for Tuition) and $6,000 in Box 5 (Scholarships and Grants). Currently the $3,000 refund (difference between Box 1 and Box 5) is being treated Wages, even though the taxpayer refunded the VA during 2020. All transactions took place during 2020. How does the taxpayer properly reflect this on the 2020 federal 1040?
1) Is Box 5 on the 1098-T improperly overstated or Box 1 improperly understated for 2020?
2) Can the taxpayer subtract the $3,000 refund from the amount shown in Box 5 for 2020 or will Box 6 (Adjustments to Scholarships) reflect this refund on the 2021 1098-T and the taxpayer will need to amend the 2020 return?
