Dependent's taxable scholarship in Turbo Tax

[bythebay-]

Where do we enter our dependent son's taxable scholarship amount on his 2023 tax return in Turbo Tax?

I have already filed our taxes and entered his 1098-T info there.

There is a portion of his 2023 scholarship which is taxable.

While doing my taxes, Turbo Tax told me the amount and alerted me that, on his taxes, his taxable amount shouldn't go in the "Wages/Income" portion , but should go in "Education Expenses & Scholarships."

Now that we're in his Turbo Tax, it is hard to know exactly how to make that happen.

Where (and how) exactly does he enter his taxable scholarship amount in 2023 Turbo Tax? 

Specifically, is this through an interview or some other way?

And does he need to enter his 1098-T? 

(i.e., as a dependent what portions of the interview does he ignore and which does he need to focus on regarding education?)

Thanks in advance for shining a light on the path.  

[bythebay-]

Still not sure where to put this taxable scholarship in dependent son's Turbo Tax.

Does he enter his 1098-T?

Do we do it through an Turbotax interview in education? or a direct-to-a-form method?

[Hal_Al]

There's a simple way to do it.  Enter in the educational expenses and scholarships section. When asked to enter his 1098-T, enter it with box 1 blank and the taxable amount, previously calculated (on your return) in box 5.

That amount should appear on line 8r of Schedule 1. 

That assumes, you agree with TT's calculation.  If you're not sure, provide some numbers and I'll review them.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  So, this means if that is his only income, he does not need to file if it's less than $13,850.  But, you may want file anyway, to document the reporting of the income, that allows you to claim the credit, on your return. 

[Hal_Al]

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 $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.

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.

[bythebay-]

Thank you, @Hal_Al .  We will try that in the next day or so.  Your info is really appreciated!  Thank you for taking the time.

[bythebay-]

Yes, @Hal_Al , that worked.  Thank you.

So, if someone else is reading this: 

I had a kid who earned more in scholarships than got used for tuition (on 1098-T Box 5 was bigger than box 1).

I had entered his 1098-T on my taxes, but he needed to pay taxes  on the difference on his taxes (or at least report it).

Here's what we did (and it worked!):

In turbotax doing our dependent son's taxes, we entered his 1098-T in the Education section (not wages/income section) of the interview (and had to go through all their questions trying to see if he was going to qualify for a tax credit even though we KNEW he wasn't because he is a dependent). 

All we knew after going through the education interview was that he didn't qualify for a tax credit (duh-- we already knew that).

It wasn't until we looked at his actual tax form (after paying...) were we sure that turbotax put that into his taxable income. But it was there. 

Hope this helps someone else.  (I wish turbotax had been more specific when doing MY taxes as to how to go about entering it in his tax forms.  When doing my taxes, turbotax said that he'd have to report it "in Education not  in Wages", but turbotax didn't say enough details to be helpful... it should have said, "just proceed through all the tax credit interview questions as if you are looking to get a tax credit but don't worry we'll plug that taxable amount transparently into the right place when all is said and done." 

Thanks again, @Hal_Al !  Your info was just what I needed to give it a try.