1098-T

[punk26]

We claim our son as a dependent. Therefore, we will apply the 1098-T to our income tax report.  However, Line 5 is larger than line 1.  Do we still claim this?  Or does a portion of the 1098-T get claimed on his own income taxes report for his part-time job?

[AmyC]

So glad  you asked so maybe you can get the education credit. If you enter the 1098-T with box 5 bigger than box 1, you don't get any education credit. Let's see what is best for both of you.

1. First, do you qualify for the credit?
   • For the full credit, your MAGI (modified adjusted gross income) is less than $80,000 ($160,000 if you're filing jointly)
   • For a reduced credit, your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you're filing jointly)
   • There is no credit given if your MAGI is above $90,000 ($180,000 if you’re filing jointly)
2. If you:
   1. qualify to claim education credit, your goal is $4,000 spent on tuition for maximum credit. The IRS allows juggling numbers. We can dig into your situation to figure out the best method for you and your student. The 1098-T is informational and need not be entered as received. You don't need to enter anything  for expenses. Generally:
      • If you spent $4,000 or more on Qualified Education Expenses - Internal Revenue Service: Enter the 1098-T with $4,000 tuition and zero scholarship to get the program to easily give the correct credit.
      • If you did not spend $4,000 the IRS allows you to say that you did and increase the student income. Enter the 1098-T with $4,000 tuition and zero scholarship to get the program to give the correct credit. You are basically saying the student used the extra money for living expenses so you will need to verify that the scholarship did not have any such stipulations to use this method.

• don't qualify: No education credit  on your return. However, you may need to include the Kiddie Tax. If the scholarship (and other unearned) income is over $2,700 for TY25, determine if this must be reported as  kiddie tax -see What is the Kiddie Tax?

Now, the student.

If the total taxable student income  (scholarships, 529, work, investments, etc.) reaches $15,750, the student must file a return. You can quickly run through the IRS quiz  Do I Need to File a Tax Return?  But first, let's figure out the scholarship income.

• If the parent is not eligible for the education credit,
  • Scholarship income is box 5 minus box 1 minus expenses.
  • if taxable, enter the 1098-T as-is into the return and add any extra education expenses.

• If the parent is claiming the education credit
  • If filing, enter the 1098-T with the remainder of the tuition (after the $4,000 you took out) and enter the full scholarship amount.  Enter additional expenses, books, other required expenses.
  • The student's scholarship income will be: box 5 minus (box 1 reported on student return-usually $4k less than actual)  minus any additional expenses for books and supplies, etc.