1098T

[ashleyr409]

My son(18) goes to a community college. We will still claim him as a dependent. He did not pay for anything out of pocket for college. In fact he received about $1400 refund from the pell grant he was approved for.

Will we need to file the 1098T on my taxes? It asked if anyone is attending college, I know i need to answer yes but do i need to add any income into this.

Thank you

[Bsch4477]

Since you have no education expenses to claim and he has no filing requirement you don’t have to report the 1098-T. 

[NCperson]

@ashleyr409 - on the 1098T, if Box 5 exceeds Box 1 (which I think is what you are saying since he received bac $1400) , that difference is taxable income TO YOUR SON.  HE needs to report it on HIS tax return. 

 If he is not required to file a tax return, then it can just go in a draw - nothing to report,  

[Hal_Al]

Q. Will we need to file the 1098T on my taxes? 

A. No. The  1098-T is only an informational document. The numbers on it are not required to be entered onto your (or your student's) 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.  You need to determine that.  TurboTax (TT) can help.

Q. It asked if anyone is attending college, I know i need to answer yes but do i need to add any income into this?

A.  No. if any income is to be reported, it goes on the student's return (if he even needs to file).  If taxable scholarship is his only income and it is less than $12,950, he is not required to file a tax return. 

There is a tax “loop hole” available to allow you to claim a tuition credit, even though you paid no tuition. . 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 conditions of the grant are that it be used to pay for qualified expenses.  Pell grants are typically not restricted.

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 (AOC). But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.  $4000 is the amount needed to claim the maximum $2500 AOC.

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, she would only need to report $5000 of taxable scholarship income, instead of $6000.

In this example, if that $5000 (or $6000) is his only income, he is technically not required to file a tax return (it's less than $12,950).  But, you may want to have him file anyway to document that he reported the scholarship as taxable income (to allow you to claim the credit).

This is not some sinister scheme. From the  form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970  actually has examples of how to do the “loop hole”. 

[ashleyr409]

So we both file the form? 
I apologize I am seriously confused. When I file my return I will choose (yes) someone attends college and put his total amount.

Then when I file his taxes I will choose(yes) someone attends college and put his total amount .

If he files it on his return I will be able to get the credit because it’s now taxable?  

[ashleyr409]

My son will have to file taxes. He made about $15,000 at his part time job. 

[Hal_Al]

Q.  So we both file the 1098-T form? 

A. Yes. If you claim the tuition credit, you do need to report that you got one (the TurboTax interview will handle this) Your student should use the 1098-T because it makes entering scholarship income go smoother and puts the income in the right place on the tax forms (line  8r of Schedule 1 [new for 2022], formerly line 1 of form 1040 with the notation “SCH”). 

You essentially have to use a work around in TurboTax (TT). Here's how I would do it. Enter the 1098-T, on your return, but only enter $4000 in box 1. No other numbers. You only enter the 1098-T to get TurboTax to check the proper box on form 8863. Lying to TurboTax to get it to do what you want does not constitute lying to the IRS.

Enter the 1098-T, exactly as received, on the student's return. Enter book expenses separately.  In his interview, you should eventually reach a screen called "Amount used to calculate education deduction or credit" Be sure the amount in that box is $4000. That will put all his excess scholarship as income on his return.  

Be advised some people are saying they're not getting the "Amount used to claim the tuition deduction or credit" screen on the dependent’s interview.  Check the student information work sheet (part VI, line 17) to verify it was entered.  If not, the alternate workaround is  to enter $4000 less than the actual box 1  amount, when you enter the 1098-T. 

There's yet another (and simplest) work around. Manually calculate the taxable amount of scholarship and enter the 1098-T, on his return, with 0 in box 1 and the  taxable amount  in box 5. In that case be sure the amount in the  "Amount used to claim the tuition deduction or credit" box is 0.

Q. If he files it on his return I will be able to get the credit because it’s (the scholarship) now taxable?  

A.  Yes.  That answer assumes the scholarship was not restricted to tuition.