Education credit

[Confusedmom2]

My situation :

Son graduated college 2021. 

Spring 2021 qualified tuition expenses were 18410 with bill date of 1/22/21

$10060 of that spring bill was paid on 12/6/20 when 1st spring tuition payment was due.

1098t received shows:

box 1 total qualified paid expenses of $8350

Box 5 scholarships of 13100.

So artificially showing he received more scholarships than we paid in tuition.

Because of these numbers, not only are we not getting education credit, it is saying he had to pay taxes On excess scholarship!!  But there was no excess.   How can this be corrected? 

[KrisD15]

It isn't clear who made the 12/6/2020 payment or what year expenses the scholarship was used for.

That payment can only go towards a credit on your 2020 Tax Year return.

You can allocate (part of) the scholarship to a different year, but you can't change what was paid in 2021 (which is what the credit is based on).

You can only claim what is paid in the tax year for an education credit, so if part of that was paid in 2020, that part of the expenses can not be used for 2021.

You can use expenses paid in a tax year for that year and/or the first three months of the following year, but you can't go backwards.

After you enter the 1098-T, a screen will ask "Did Student's Aid Include Amounts Not Awarded for 2021 Expenses?"

Answer "Yes" and a drop-down box will let you allocate whatever portion scholarship on the 1098-T was used for 2020 expenses. 

[Confusedmom2]

I paid the $10060 tuition payment in december 2020 for the spring semester.  

So basically there is nothing to do to fix getting the education credit for 2021.  Craziness.

So tuition and qualified expenses  was 18410 and shows actual billes on 1/22/21 (even though payment was due Dec 6).   

Are we liable for paying taxes on the difference between box 5 scholarship of 13100 and balance of qualified expenses in box 1 of 8370?  Even though billed tuition did not exceed the scholarship? 

[KrisD15]

Don't let the IRS hear you say that you'll let your son file on his own. People don't get to "Choose" if they are a dependent or not. 

No, if the scholarship was used for education expenses, no one has to claim that as income. THAT (the scholarship) CAN be allocated to the previous year. Only PAYMENTS from a previous year cannot be used. 

If the scholarship covered expenses, and there are no expenses paid in 2021, you needn't enter the 1098-T. Just keep the student account record with your tax file. 

You do have other options as well. 

If the scholarship is not restricted (Not restricted to be used for tuition only) you might allocate part of the scholarship towards room and board expense. This would make it taxable to the student, but if it frees up expenses for a credit, it might be worth it. 

Also, don't forget about other expenses the credit can be based on, such as Supplies and Books, Internet and laptop. 

The American Opportunity Tax Credit may only be taken up to 4 times per student. 

If you have not used it 4 times for this student, you only need to claim 4,000 in expenses to get the full credit (of course there are also income limits that phase the credit out)  since the credit maxes out at that point. 

It is well worth looking over IRS Pub 970 

IRS PUB 970

[Confusedmom2]

Thanks for your input!  He was self supporting for more than half the year, but was a full time student until graduation in May.   He graduated with an engineering degree so was well employed at graduation.   So sounds like I shouldn't have been considering claiming him as dependent at all for 2021.   

We already received American opportunity credit for 4 tax years, so only eligiblilty would be lifetime learning credit this year. 

Thanks again, I appreciate the clarity you brought to this situation.