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1098-t earned in a different state

I've seen several questions about 1098-Ts in this forum.  I believe I understand but would like clarification on some things.  I also have a couple of question on state taxes.  Here is my son's situation:

We live in Indiana, but he goes to college in Ohio on a full ride athletic scholarship.  He received a 1098-T for approximately $37.5K (box 5) with payments received for tuition, etc. (box 1) of $14.5K.  He also made $1K in a summer job in Ohio.  No federal taxes were taken out, and $6 in state (Ohio) taxes taken out for his job.  

I am doing his taxes, and I made a separate Federal tax return under his name and entered both his 1098-T as well as his $1K from his job.  I checked "someone can claim you as a dependent" on his form.  I am claiming him as a dependent on my federal form, and I did NOT put any information from his 1098-T on my federal taxes.  I believe it is OK to do this way??  Please advise if it isn't.

Now my question on state taxes.  As I understand it, he is still a resident of Indiana even though he goes to school in Ohio.  So I believe I would file an Indiana tax return for him as there is reciprocal clauses between Indiana and Ohio regarding state taxes.

Here are my questions:

1) Indiana's "rule of thumb" for filing state taxes is $1000.  So I don't know if I even need to file Indiana tax return for him??.....OR

2) I had already entered his `1098-T and his $1000 in wages into Turbotax.  When I went to the turbotax tab for state taxes, it gave me a "Indiana Tax Due" number of $900!  So it is obviously counting the $23K that's taxable from the 1098-T.  Is this correct?  He has to pay state tax on the 1098-T as well?  And if so, does he pay it to Indiana or Ohio??  And does Turbotax software handle this calculation and I just have to print out the forms from the proper state and send them in?

Thanks for the help.

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6 Replies
ColeenD3
Expert Alumni

1098-t earned in a different state

If he were getting the Education Credit and you claimed him, you would have to include him on your return, but he isn't.  Regarding IN, he has no exemption on the IN return since you are claiming him.

 

Full-Year Residents

 

If you were a full-year resident of Indiana and your gross income (the total of all your income before deductions) was more than your total exemptions claimed, then you must file an Indiana tax return. A general rule of thumb is to file Indiana state taxes if your income is $1,000 or more. When in doubt, it is best to file.

To determine if you're required to file, first, figure your Indiana exemptions. Allow $1,000 for:

  • You
  • Your spouse, if married filing jointly, and
  • Any dependents you are eligible to claim (such as a child or elderly parent who lives with you.)
Hal_Al
Level 15

1098-t earned in a different state

Q.   So I don't know if I even need to file Indiana tax return for him??

A.  Yes, he does need to file  because some of his scholarship is taxable at both the state and federal level. 

 

Q. Does he pay it to Indiana or Ohio??  

A. Only IN.  Because of the reciprocal rule (and other rules) he does not need to file an OH return, unless you want to go to the trouble of getting the $6 OH withholding (w/h) back.  If the  OH w/h was in box 19 (instead of box 17)  of the W-2, it was city w/h, not state, and you cannot get that refunded (the reciprocity rule doesn't apply to city tax).  Your IN county may give you a credit for OH city tax paid. 

 

Q.   So it is obviously counting the $23K that's taxable from the 1098-T.  Is this correct?  He has to pay state tax on the 1098-T as well? 

A. Yes, both state and federal tax scholarships used for room and board and misc expenses

 

Q, Does TurboTax (TT) software handle this calculation and I just have to print out the forms from the proper state and send them in?

A. Yes. At least theoretically.  But the education interview is tricky and you should review and verify before filing (both state and federal).  Rule of thumb: the difference between box 1 and box 5, of the 1098-T, is the taxable amount.  But that can be reduce by the cost of books, fees and a required computer, not included  in box 1. 

 

Q.  I did NOT put any information from his 1098-T on my federal taxes.  Is it OK to do this way?

A.  Simple answer: yes.  Since all his "qualified" educational expenses (tuition, fees, books, required computer) are paid by the tax free portion of his scholarship, you usually cannot claim a tuition credit.

BUT

There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), 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 $37,500 in box 5 of the 1098-T and $14,500 in box 1. At first glance he has $23,000 of taxable income and nobody can claim the American opportunity credit. But if he reports $27,000 as income on his return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket, he would only need to report $26,000 of taxable scholarship income, instead of $27,000.

 

1098-t earned in a different state

Thank you for taking the time to answer.  I completely understand and appreciate the help.  It's the first time I (he) got the 1098-T and it's difficult to understand how to handle.

cavhoos
Returning Member

1098-t earned in a different state

Great help for me as I'm in almost the exact situation with my daughter. The one question I have is where best to claim the $4000 of additional income to reflect adding that portion of the taxable income from the scholarship? Within the Education as an additional scholarship, or put it underneath additional unearned income? Thanks in advance.

Hal_Al
Level 15

1098-t earned in a different state

Q.  where is the  best place to claim the $4000 of additional income to reflect adding that portion of the taxable income from the scholarship? Within the Education as an additional scholarship, or put it underneath additional unearned income? 

A. Within the Education as an additional scholarship.  This properly identifies it as Taxable Scholarship and puts it om line 8r (new for 2022) of Schedule 1. Scholarship is treated as earned income for purposes of calculating a dependent's standard deduction (earned income + $350).

MarilynG1
Expert Alumni

1098-t earned in a different state

You can report the taxable scholarship income in the Education section as as additional scholarship not used for Qualified Education Expenses and it will automatically be added to income.  Report $0 as Education Expenses and $4000 as Scholarship.

 

If the excess is flowing from a 1098-T entry, it should also automatically flow to income on Form 1040. 

 

Here's more info on Reporting Taxable Scholarship Income. 

 

 

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