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jpnsqwa444
Returning Member

1098T Scholarship Information

I received a 1098T from the university showing $45,825 (box1) in paid expenses.  This amount is what I paid.  It does not include expenses covered by $15,000 in scholarships reported in box 5.  Total tuition expenses were $60,825 from which the scholarship was deducted.  I have taken taken distributions from the 529 plan to cover the amount I owed $45,825.  This is reported on my 1099Q.  

When I enter this information in Turbotax, it is adding the scholarship money to my taxable income even though the scholarship money was used entirely to reduce my tuition expenses.  I have noticed this on my current 2023 taxes and my 2022 taxes - which I now need to amend.  How should this be reported and how do I get help from Turbotax to fix their error on 2022?

 

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5 Replies
KrisD15
Expert Alumni

1098T Scholarship Information

The school is required to report what was paid in Box 1, they should not deduct any payments or scholarships. 

 

According to the IRS:

Enter the total amount of payments received for qualified tuition and related expenses from all sources during the calendar year. The amount reported is the total amount of payments received less any reimbursements or refunds made during the calendar year that relate to the payments received for qualified tuition and related expenses during the same calendar year. The amount reported is not reduced by scholarships and grants reported in box 5. Include in this box the receipt of a payment of past-due qualified tuition or related expenses from a previous calendar year, but only if the educational institution previously billed the student for such amount(s).

 

If the school reported the 1098-T incorrectly, use the "What if this is not what was paid to this school?" link under Box 1 on the 1098-T entry screen and enter the proper amount. 

Check your school records to validate this corrected amount and keep a copy with your tax file. 

 

If the 1098-T was also mis-reported in Tax Year 2022, and the correction will change your tax liability, file an amended 2022 return using the same procedure to make the correction to the 1098-T.  

 

 How to amend using TurboTax 

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Hal_Al
Level 15

1098T Scholarship Information

You are, most likely,  mistaken. The amount in box 1, of the 1098-T,  includes the amount paid paid  by the box 5 amount. This is the way the school is required to report it. So, that's the way TurboTax does it.

 

Q. how do I get help from Turbotax to fix their error on 2022?

A. There is no TurboTax error.  There is either your error or the school's error.  That is fixed by using a workaround. 

 

If you are absolutely sure that you are right, then you enter the 1098-T with $60,825 in box 1. 

 The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2023 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

Hal_Al
Level 15

1098T Scholarship Information

Room and board, books and a required computer are also qualified expenses for a 529 distribution. 

 

  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. 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. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. You also cannot count expenses that were paid by tax free scholarships. You cannot double dip! 

References:

  1. 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." 
  2. IRS Pub 970 states: “Generally, distributions are tax free if they aren't more than the beneficiary's AQEE for the year. Don't report tax-free distributions (including qualifying rollovers) on your tax return”.

_________________________________________________________________________________________

Qualified Tuition Plans  (QTP 529 Plans) Distributions

General Discussion

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 American Opportunity Credit (AOC or AOTC) is 100% of the first $2000 of tuition and 25% of the next $2000 ($2500 maximum credit). 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 (on the recipient’s return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $2800

3000/5000=60% of the earnings are tax free; 40% are taxable

40% x 2800= $1120

There is  $1120 of taxable income (on the recipient’s return)

 

**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. Most people come out better having the scholarship taxable before the 529 earnings. 

Carl
Level 15

1098T Scholarship Information

You reference a 1099-Q. Monies reported on a 1099-Q is treated entirely different than a grant or scholarship. That's because scholarships can only be used for the qualified education expenses of tuition, books, and lab fees. Whereas 1099-Q funds can be used for the same "AND" for room and board so long as that room and board is directly in support of the education.
When you have a 1099-Q it is extremely important to work through the education section the way it was designed and intended to be used. If you do not, then chances are high that you will not be asked for room and board expenses. Then the "excess" 1099-Q funds are taxable income to the student, subject to being taxed at the parent's tax rate - which is sometimes higher.

 

jpnsqwa444
Returning Member

1098T Scholarship Information

Thank you for the IRS reference. I will notify the university of their error and have corrected my TT entry. 

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