topic There is no specific income limit for a full time student... in Education

Is the entire box 5 1098-T taxable

ksdonathan — Fri, 07 Jun 2019 22:01:21 GMT

Is the full amount on box 5 from my 1098-T taxable? I know that most of the aid that I received for school went to pay tuition, and came from the state and federal money (through Oklahomas promise and PEL grant.

Here's how this works. Scholarships/grants are applied to...

Carl — Fri, 07 Jun 2019 22:01:22 GMT

Here's how this works.

Scholarships/grants are applied to qualified education expenses first. The only qualified education expenses for a scholarship/grant are tuition, books, and lab fees. That's it. Period. After that, any excess scholarships/grants are taxable income to the student.

Next, 529 funds reported on a 1099-Q are applied. The qualified education expenses for 1099-Q money can be used for tuition, books, lab fees and room & board. 1099-Q funds are applied to room and board last. Anything left over is taxable income to the student.

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

- Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

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.

According to TurboTax the student's amount of income also...

racheljmc — Fri, 07 Jun 2019 22:01:24 GMT

According to TurboTax the student's amount of income also affects their status as a dependent. If the student earns more than a set amount (which is somewhere around $5000) then they cannot be claimed as a dependent. If anyone has a different understanding of this I would appreciate hearing about it.

There is no specific income limit for a full time student...

Texas Roger — Fri, 07 Jun 2019 22:01:25 GMT

There is no specific income limit for a full time student under the age of 24 to be claimed as a dependent. The limit is that the student cannot have provided more than half their own support. A student could have $50,000 of income and put it all in savings and still be claimed as long as they didn't provide more than 1/2 their own support with whatever income they received.

No, it is not "according to TurboTax" nor is it according...

Carl — Fri, 07 Jun 2019 22:01:27 GMT

No, it is not "according to TurboTax" nor is it according to tax law either. IRS Publication 17 clearly states:
For a student that, on Dec 31 of the tax year is:
-Under the age of 24 and;
-Enrolled in an accredited institution of higher learning (which can include some vocational schools) and;
-Is enrolled in an undergraduate course of study that will lead to a degree or certification and;
-Is enrolled as a full time student for any one semester that started in the tax year;and;
-The student did not provide more than half of their own support for the tax year (Scholarships, grants, 529 funds, gifts from Aunt Mary, etc. *do not count* for the student providing their own support.)
Then:
The student qualifies to be claimed as a dependent on the parent's tax return. There is no earnings limit on what the student can make. The student can earn a million dollars and still qualify as a dependent on the parent's tax return.
Take special note also, that there is no requirement for the parent's to provide any support. Not one penny. The support requirement is on the student, and only the student. There are only two possible ways the student can provide more than 50% of their own support.
1) The student had a job or was self-employed in the tax year and earned sufficient amount to have provided more than 50% of their own support. (If they got sufficient scholarships, grants, 520 funds then it's perfectly possible for the student to have earned a million dollars, and still not have provided more than half their own support.)
2) The student had qualified student loans on which the student was the *primary* borrower, and a sufficient amount of that borrowed money was distributed to the student in the tax year, to have provided more than half of that student's support.

Re: No, it is not "according to TurboTax" nor is it according...

singardia — Fri, 06 Mar 2020 14:31:42 GMT

Would they be a Qualifying Child or Qualifying Relative? There may be a snag in the last semester of school that goes to May and the student moves out to start a job. There is the "live with you more than half the year" rule that has to be considered.

Re: Is the entire box 5 1098-T taxable

KrisD15 — Fri, 06 Mar 2020 21:54:37 GMT

Correct.

To be a student for the Qualifying Child dependent, the student needs to be in school at least part of at least 5 months, and also live at home at least 6 months, which may include the time the child is way at school. The student must also not supply more than half their own support and meet the age and relationship requirements.

Re: Is the entire box 5 1098-T taxable

singardia — Fri, 06 Mar 2020 22:16:05 GMT

I ran into that with my son in his last semester as he already had his own apartment. Therefore, he only lived with me until the second week of May while he was in school. So I just had him include the lifelong learning credit on his return, but made him give me that money! 🙂

1098-T yikes

Dr_Ruth — Tue, 14 Apr 2020 19:12:37 GMT

So I do not remember this happening last year. Got the 1098T from the school and put those numbers in just as the form said to, and the 135 dollar refund went to 9000 owed. It looks as though they are taxing the scholarships and grants when that is not supposed to happen.

Please help

Re: 1098-T yikes

KrisD15 — Tue, 14 Apr 2020 19:55:45 GMT

What numbers do you have in box 1, box 5 and box 6?

Did you receive more in scholarships that what you paid in tuition?

Re: 1098-T yikes

C88 — Sun, 19 Apr 2020 09:43:35 GMT

New to the conversation but came looking because my 1098-T has less information than I expected (and no portion of my scholarships were included on a W-2). Boxes 1 and 6 are empty, and the number in Box 5 is approximately $13,000. The majority of that amount is from a tuition waiver.

Does this sound correct? Unlike the person who wrote before me, my amount owed doesn't jump so drastically, only $150 or so. Still, an answer is appreciated!

Re: 1098-T yikes

acep1111 — Tue, 21 Apr 2020 11:43:37 GMT

I'm a different user but with questions about this issue.

I'm a graduate student, over 24, nobody can claim me as a dependent. The number in box 1 is over $4000 greater than the number in box 5 (the number in box 6 is $0.00. Box 7 and the box for at least half-time student are checked. Box 3 is blank and boxes 4 & 10 are $0.00

However, whereas I get a deduction of $4000, all of the income in box 7 is treated as income in my 1040. How come, I thought the grants and scholarships for tuition, books and other qualified expenses were not taxable.

Any help would be appreciated (I'm using turbo premier)

Re: 1098-T yikes

Twobit12 — Wed, 22 Apr 2020 15:00:40 GMT

I'm in the same boat. I dont know what is happening, but I have a feeling the problem resides in TurboTax software. The amount for tuition and fees is set to 0, cannot be changed and the help box tells me it was entered earlier, but it never was. Why cant TurboTax allow me to enter the amounts from the 1098T like any other forms. The total amount of the scholarships went to tuition and fees and therefore should not be taxable (I believe) but the software doesnt seem to be allowing this leap.

Re: 1098-T yikes

Dr_Ruth — Wed, 22 Apr 2020 15:45:48 GMT

Twobit12

Later today we are doing two things. We are looking at other tax programs. Turbo Tax made two mistakes on an earlier set of taxes and it cost us quite a bit. Trying to find one that imports from TurboTax so I do not have to type in the information for all eight grandchildren.

I am also going to compare this with another grandchild's scholarship form which seems to be working out okay through another college, and see if there is something wrong in one of those extraneous boxes that always seem to need to be checked.

Will write back if I find something

Re: 1098-T yikes

Dr_Ruth — Wed, 22 Apr 2020 17:28:01 GMT

This may not do a thing for you but this is what happened to me. I had run an error check and everything was fine. I entered the 1098T as it was printed and then the program just BLEW. Instead of 132 back, she owed 9800. My mistake (and my husband did find this) not running the final error check again. It came up with whole new forms to fill out that I did not need previously with my grandson and it walked me through the forms I have never seen before.

ANYWAY, try that and see what happens. I still have to do some detective work and see and take notes on the new forms in case any of the other children react in the same way.

Yikes

Re: 1098-T yikes

AnnetteB6 — Thu, 23 Apr 2020 19:24:24 GMT

Start by going to the Education section of your return using these steps:

On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
This opens a box where you can type in “education” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
The search results will give you an option to “Jump to education”
Click on the blue “Jump to education” link

Then, if you are not prompted to enter your 1098-T, go through the entire education expenses section (without entering any information yet) of your return until you reach the screen titled “Your Education Expenses Summary”, then follow these steps:

Click Edit next to the student name.
On the screen titled “Here’s your Education Summary”, click Edit beside Tuition.
Enter the information from your Form 1098-T.

@Twobit12

Re: Here's how this works. Scholarships/grants are applied to...

digital_phc — Fri, 05 Feb 2021 02:07:14 GMT

Carl,

I'm having a problem understanding the 1098-T and 1099-Q for my daughters tax return.

Her 1098-T

Box 1 $51,955

Box 5 $58,493

Difference $6,538

So I assume she will be paying Taxes on the difference between Box 1 & Box 5

On her 529 Plan we took out for the whole year but unfortunately we took it all out in 2020

So on her 1099-Q it shows the following

Box 1 $8,348 Gross distribution

Box 2 $4,345 Earnings

Box 3 $4002 Basis

She lived in the dorms part of the year and then was sent home in March and received a $950 credit for dorm room. Then in the fall of 2020 she rented a house with 3 other girls and paid $650 a month for rent and about $400 a month on food. I think those 2 items will help reduce her expense on the 1099-Q. Please let me know if I'm correct on the Rent and Food helping to reduce her taxes.

I think she needs to report both of these on her Tax Return. As I am divorced, her mom claims hers as a dependent on her return but does not Qualify for the AOTC, I think because of the 1098-T showing more in Box 5 than in Box 1.

Is there any way to reduce the amount of taxes my daughter will owe. You also talk about a chart at the bottom of your reply that doesn't seem to exist anymore. I would like to see that and maybe it will help my understanding of this whole process. It seems overly complicated but I know it's something that has to be done. Thanks for any help you can provide on my problem.

V/R,

Steve

US NAVY Veteran

Re: Here's how this works. Scholarships/grants are applied to...

AmyC — Fri, 05 Feb 2021 02:59:27 GMT

Yes, we can reduce taxes for all, there are options. The expenses go on the same return as the student. The 529 plan goes on the return of the person whose name is on it unless it covers all education expenses, then it does not have to reported. Our goal, get the 529 to cover education expenses if possible.

Box 1 is only the college. You had more expenses for items required by the school, books, paper, stuff. Add those costs together.

Box 5 scholarship went towards room and board - living expenses to some degree. The question is to figure out how much. The more you put towards room and board, then less is left for education. Remember, the goal is to get that 529 used for college expenses. The more that goes towards living expenses, the more goes into her scholarship income. Her tax rate is low, $0 for the first $12,400 versus your tax rate. Plus, if you can get education credit to boot, win- win!

It is a tricky game getting all the numbers figured out. The IRS allows you to be smart with your money.

Please look at another of my answers for help. .on how to do this.

@digital_phc

Re: Here's how this works. Scholarships/grants are applied to...

Hal_Al — Fri, 05 Feb 2021 03:04:47 GMT

Qualified Tuition Plans (QTP 529 Plans) Distributions

It’s complicated.

For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

You can and should claim the tuition credit before claiming the 529 plan earnings exclusion. The educational expenses he claims for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
But be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit, that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q.
Example:
$10,000 in educational expenses(including room & board)

-$3000 paid by tax free scholarship***

-$4000 used to claim the American Opportunity credit

=$3000 Can be used against the 1099-Q (usually on the student’s return)

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

You have $240 of taxable income (600-360)

**Alternatively; you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip! When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

________________________________________________________________________________________

There is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Re: Is the entire box 5 1098-T taxable

Phil mcculey — Sat, 25 Sep 2021 11:13:57 GMT

How to get