EDIT: 3/21/2018 --- See LauraJD's answer in this thread, as it applies directly to the ROTC stipends. My post applies "indirectly" at best.
This will clarify things for you. There's a lot here, and all of it *really* does matter. So read it through completely. It's not as bad as it looks either.
If you received a 1098-T
for 2015, understand that the student is the only person on the planet that
received that specific 1098-T. A copy is not sent to the IRS. The 1098-T is
"informational only" for the student. You are not required to utilize
the information on the 1098-T if you don't want to. Also, it’s not that
uncommon for the 1098-T to be wrong either.
The best thing to do
is to have the student log on to their college account and go to their
financials section of their account. There they can get a detailed printout of
everything which can be used for filing taxes. But first, let me provide more
information (which you may already be aware of) which may help alleviate
confusion.
Understand that the IRS
works in calendar years, while colleges work in academic years. So the reality
is, it takes 5 calendar years to get that four year degree. So with that said:
- Qualified education
expenses are claimed in the tax year they are paid. It does not matter what
year they pay "for".
- Scholarhips and
grants are claimed as taxable income (initially) in the tax year they are
received. It does not matter what year that scholarship or grant is *for*.
So when looking at the
detailed printout, be careful. What you are concerned with is the date a
qualified expense was paid/applied. You should completely ignore the start date
of the class it applies to.
If you don't find the below
helpful because you may already know it, then I'm sure others reading this
thread will. So please bear with me. (I like to be complete - it's just me)
-
College Education Expenses
Understand that figuring out who claims the student as a
dependent, and determining who claims the education expenses & credits, is
two different determinations. It depends on the specific situation as outlined
below. After you read it, I have also attached a chart at the bottom. You can
click on the chart to enlarge it so you can read it. If it’s still to hard to
read on your screen then right-click on the enlarged image and elect to save it
to your computer. Then you can double-click the saved image file on your
computer to open it, and it will be even easier to read.
Here’s the general rules gisted from IRS Publication 970
at http://www.irs.gov/pub/irs-pdf/p970.pdf
Some words are in bold, italicized, or capitalized just for emphasis. This is
because correct interpretation by the reader is everything. Take the below
contents LITERALLY, and do not try to “read between the lines”. If you do,
you’ll interpret it incorrectly and risk reporting things wrong on your taxes.
For example, there is a vast difference between “can be claimed” and “must be
claimed”. The first one indicates a
choice. The second one provides no choice.
If the student:
Is under the age of 24 on Dec 31 of the tax year and:
Is enrolled in an undergraduate program at an accredited
institution and:
Is enrolled as at least a half time student for one
academic semester that begins during the tax year, (each institution has their
own definition of a half time student) and:
the STUDENT
did NOT provide more that 50% of the
STUDENT’S support
(schollarships/grants received by the student ***do not count*** as the student providing their own
support)
Then:
The parents will claim the student as a dependent on the
parent's tax return and:
The parents will claim all schollarships, grants, tuition
payments, and the student's 1098-T on the parent's tax return and:
The parents will claim all educational tax credits that
qualify.
If the student will be filing a tax return and:
The parents qualify to claim the student as a dependent,
then:
The student must select the option for "I can be
claimed on someone else's return", on the student's tax return. The
student must select this option ieven f the parent's qualify to claim the
student as a dependent, and the parents do not claim them.
Now here’s some additional information that may or may
not affect who files the 1098-T. If the amount of scholarships/grants exceeds
the amount of qualified education expenses, the parent will know this when
reporting the education on their tax return, because the parent will not
qualify for any of the tax credits. (They only qualify for tax credits based on
out-of-pocket qualified expenses not covered by scholarships/grants.) Also, the parent’s will not qualify for the
credits depending on their MAGI which is different for each credit, and depends
on the marital status of the parent or parents.
In the case where scholarships/grants covers “all”
qualified education expenses, the parent’s don’t need to report educational
information on their dependent student at all – but they still claim the
student as a dependent if they “qualify” to claim the student.
If the
scholarships/grants exceed the qualified education expenses, then the student will
report the 1098-T and all other educational expenses and scholarships/grants on
the student’s tax return. The student will pay taxes on the amount of scholarships/grants
that are not used for qualified education expenses. However, if the
student’s earned income reported on a W-2, when added to the excess scholarships/grants
does NOT exceed $6200, then the student doesn’t even need to file a tax return,
and nothing has to be reported.
If the student has any other taxable income not reported
on a W-2, and it exceeds $400, (not including taxable portion of
scholarships/grants) then most likely it’s considered self-employment income.
That will require a tax return to be filed and the student will have to pay the
Self-Employment tax on that income.
Finally, regardless of the student’s W-2 earnings, if any
taxes were withheld on those earnings and it was less than $6200, then the
student should file a tax return so as to get those withheld taxes refunded.
