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antrez
Level 2

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

I apologize for the confusion in advance.

 

I graduated from college in May 2019, and upon looking at my 1098-T, my scholarship of $49,877 (box 5) exceeds the payments received for qualified tuition and related expenses of $46,343 (box 1). However, there was an adjustment of $20,915 made to my scholarship for a prior year (box 4).

 

Upon looking at my Spring 2019 bills, I only owed $25,914 in tuition and fees, and I was only awarded $28,962 (thus roughly $3,000 went directly to me for room and board). So it seems like the information on my 1098-T is taking into account a scholarship from Fall 2018.

 

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? If my 1098-T says my school received $46,343 and I was awarded $49,877, it doesn't make sense to say that $20,915 was not designated for 2019 education expenses. What I was actually awarded in 2019 is not truly reflected on my 1098-T. I understand that if what I was awarded was $20,000 more than what was owed in 2019, I would say $20,000 was not used for 2019, but box 1 clearly shows that my school received most of what I was awarded. Can I assume all of what I was awarded was for 2019 education purposes?

 

Any help would be greatly appreciated.

9 Replies
AmyC
Expert Alumni

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

Yes you can. The rest of the  answer is either really easy or very messy. I am also going to apologize in advance.

 

Your box 1 and box 5 are pretty close. I understand the numbers on your 2019 1098-T include information from 2018 but it seems to be in both boxes 1 and 5 as well. Since this is how it is reported and you have graduated, roll with it. Congratulations on graduating!!!

 

Moving forward, you have two options for how to handle this income.

  1. Most people subtract box 1 from box 5 and enter the difference as income. 
  2. The other method is to actually increase your income and tax liability a little but dramatically increase your education credit.
    • Per IRS Pub 970, just two conditions for choosing this option exist: 

      "[A] scholarship or fellowship grant isn't treated as tax free to the extent the student includes it in gross income and either of the following is true. 

       

      • The scholarship or fellowship grant (or any part of it)

      must be applied (by its terms) to expenses ... other than qualified education expenses as defined in Qualified education expenses in chapter 1.

       

      • The scholarship or fellowship grant (or any part of it)

      may be applied (by its terms) to expenses (such as

      room and board) other than qualified education expenses as defined in Qualified education expenses in

      chapter 1" (emphasis in original).

So, method 2 is to claim that some of that box 5 money went to room and board. The excess of box 1 minus box 5 plus the "applied to other expenses" will become taxable income. The program will do the math. 

This brings your tuition and qualified expenses to MORE than the help you received FOR tuition. You now qualify for the education credits. Provided you qualify- see rules below.

 

Now, the question becomes, how much do you say was for other expenses? Pick a big number, that you can back up, like $10,000 for room and board. See what happens. Play with the numbers and stick with the ones that give you the best refund. Yes, the IRS actually recommends this method of madness.

 

If you don't qualify for credits, stick with option 1.

 

Please see:

 

What are examples of education expenses?

What are qualified education expenses for the American Opportunity and Lifetime Learning credits?

Why is my scholarship taxable?

Who is eligible to take the American Opportunity Tax Credit?

What education tax credits are available?

If a parent claims me as a dependent, can I claim the education tax credit?

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antrez
Level 2

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

Thank you so much for your response! I just have a few followup questions.

 

Is the purpose of the question "Was any of the scholarship income not designated to pay 2019 education expenses?" to see if any money counts as personal income or to see if my 1098-T also includes some of my 2018 award? If it is the former, then yes, I used the difference between box 5 and 1 as income. If it is the latter, then I can confidently answer no because as you stated, box 1 and box 5 both include my award from 2018.

 

For now, I am answering "no". When I do that, the next question asks if I paid for room and board with my scholarship–I did, and I put in the difference between box 5 and 1. After answering both questions, my refund does not increase at all. However, when I select "yes" and I type in the difference between box 5 and 1, my refund increases. Then when I answer the second question and put in the difference between box 5 and 1 again, my refund increases even more.

 

I'm not sure how to answer these questions. Obviously I want to maximize my refund but not if I do so by answering incorrectly. How should I go about this?

 

Thank you once again in advance!

gcarlos999
Level 1

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

Brief question after reading the answers.

 

The 1098 form does not show how much of the scholarship it was for education qualified expenses. Even though is more than qualified educ. expenses (so in theory the difference is taxable)

 

If we use method 2, i.e. allocate part of the scholarship to room that will count as taxable income, but then the student will get education tax credits (which is good).  As you mentioned play with numbers to maximize. However, the key part is how you can prove that part of the scholarship was for room,  if the 1098 form does not show that ?

 

Thank you.

AmyC
Expert Alumni

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

@gcarlos999  If you are audited, you will simply need to prove the cost of your room and board. The IRS will just want to verify you weren't living rent free somewhere with all your needs being met. The IRS allows the adjustments and expects you to maximize.

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gcarlos999
Level 1

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

The 1098 does not show what part is for tuition and what part is for room. HOWEVER, in the internal university student's account it specifies how much is for tuition and how much is for room.  Should we use those internal numbers to allocate the scholarship and then the education credit benefits ?

 

Thank you

LinaJ2020
Expert Alumni

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

Yes, you should use the correct numbers from the other source.  The Form 1098-T does not always report the most accurate information by the school.  You as the taxpayer needs to make sure you report the actual qualified education expenses you pay out of pocket to claim your education tax breaks.  

 

If you have received any scholarship, and if it is used to pay for all of your tuition expenses including books and supplies, you will not need to pay tax on it.  However, if you received the scholarship which exceeds your qualified education expenses, you will report part of your scholarship as a taxable income.  Also, room and board is not qualified education expenses to claim the tax break.  To see what qualified education expenses, click here: 

 

https://www.irs.gov/credits-deductions/individuals/qualified-ed-expenses

 

@gcarlos999

 

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Amy H
Returning Member

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

Can you clarify scenario 1.?

  1. Most people subtract box 1 from box 5 and enter the difference as income. 

So for my daughter on her 1098T  there is in box 1 $8,571.00 and box 5 $8,561.

 

Are you saying the difference (-$10.00) is what we would enter under the Education category for her on OUR tax forms not what is in box 5?

gcarlos999
Level 1

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

box 1 is what the student paid for tuition, box 5 is scholarship.  So the difference is what the student paid for tuition. 

KrisD15
Expert Alumni

How do I answer the question "Was any of the scholarship income not designated to pay 2019 education expenses"? I'm beyond confused about my 1098-T

No.

If the student is your dependent, you would enter the 1098-T into your TurboTax program. 

 

Enter dependent information first, the 1099-Q if you have one, then the 1098-T so that the TurboTax program can do the math. 

 

If the forms generate an education credit (more expenses than scholarships) you get the credit on your return. 

If the forms generate taxable (potentially) income, the student claims the income on the student's return if they are required to file. 

 

Be aware that when you get to the "Maximize My Tax Break" screen, the program MAY suggest the student claim income in order to free up expenses if this results in a better credit for you. 

 

Afterwards, you can type   letme   into the search-box and click the "Jump to letme" link. 

Here you can change the credit you are claiming if you so desire. 

 

 

 

 

@Amy H

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