New Student Fee not listed on 1098-T

[vasto7]

I paid a required $225 New Student Fee for my child's freshman semester.  This was part of the Box 1 in the 1098-T.  Where should this be entered into TT.  I suspect it gets entered on the Page "Did XX Pay for Books and Materials to attend school," in the box labeled "Books and materials required to be purchased form the school." She also had a $50 Wellness Fee.  Is there anywhere to enter this.  I paid these fee through a 529 distribution, although, I don't think that is relevant to where they get entered in TT.

Thanks.

[Hal_Al · Accepted solution]

Q.  I suspect it gets entered on the Page "Did XX Pay for Books and Materials to attend school," in the box labeled "Books and materials required to be purchased form the school."?

A.  Yes, you can enter it there.  But,  if "This was part of the Box 1 in the 1098-T", you don't enter it again.  It's already accounted for.   

Q. She also had a $50 Wellness Fee.  Is there anywhere to enter this?

A. Yes, you can enter it in the same place. The fee counts if it was "required for attendance" and is paid by all students. 

Alternatively, at 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, including those fees. 

 The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. 

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.  The 1098-T that you enter in TT is not sent to the IRS.

[vasto7]

Thank you.  That was exactly what I needed to know.

I hope you can verify one other thing that has been perplexing me.  I'm paying all tuition, fees, room and board, minus a $7,500 scholarship, through a 529 distribution.  This leaves no money to claim the American Opportunity Tax Credit.  However, I verified from the school that there is no stipulation that this scholarship be used on tuition.  So, in TT I assigned a portion of the scholarship to room and board. After assigning about $4,000 (not exactly because I had some small expenses not paid by the 529 distribution) TT told me I could get the AOTC credit.  I then went into my daughters return and filled in the 1098-T information.  On her return the now taxable scholarship is treated as ordinary income and her standard deduction covers the entire amount.  Is all of the above Kosher? 

Thanks again for your help. 

[Hal_Al]

Q. Is all of the above Kosher? 

A. Yes. The IRS actually encourages use of this technique. 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 even has examples of how to do the “loop hole”.

Kudos for figuring out how to enter it in TurboTax! Many users struggle with it.  Technically, your daughter is not required to file a return (her income is less than $12,950).  But, you may want to have her file anyway to document the reporting of the $4000 of scholarship income (which allows you to use $4000 for the AOTC). 

__________________________________________________________________________________________

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.

[vasto7]

Yes, I was thinking that I would not need to file her return, but I like the idea of doing for documentation purposes.

Thank you @Hal_Al for your prompt and super helpful replies.

Best.

[Lightningbolt]

@Hal_Al,

does this “loop hole” work for 2023 if the filer is the student. Obviously my box 5 is higher than box 1 but I also have income where do pay have payroll tax and child dependents.  It seems that my tax return is wiped out to if report my 1098T in full in that section. I’m senior in college but I work full time also. 

do I report the offer grant amount in other “income” in W2 section and leave block 5 blank on the 1098T input area?

[Hal_Al]

Q. Does this “loop hole” work for 2023 if the filer is the student. 

A. Yes, if the student is not and and can not be claimed as a s dependent, by someone else.

Q.   It seems that my tax refund is wiped out to if report my 1098T in full?

A. That is possible, if your scholarship income is high enough to push you total  income (AGI) down the Earned Income table, to where you're getting less EIC (Earned Income credit). It should not effect your Child Tax credit/Additional Child tax credit. 

But, the American Opportunity Credit is generous enough (up to $2500) that it should offset some of that loss, even though it appears that your reporting even more income.  The only way to be sure, is change the numbers and compare the result.  Change it back, if it doesn't work. 

Q. Do I report the offer grant amount in other “income” in W2 section and leave block 5 blank on the 1098T input area?

A. No. You adjust the inputs at educational expenses section.  The simple method is to increase the amount of the scholarship allocated to room and board. 

Using the example above, 

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  can not claim the American opportunity credit (AOC or AOTC). But if she reports $6000 as income on her return, she  can claim $4000 of qualified expenses on her return, for the AOC. How to do that? Enter the 1098-T, as received. When asked if any was used for room and board, answer yes. Then enter the amount you want to be taxable ($6000 in the example), in the pop up box. R&B are not "qualified educational  expenses".  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put the income on line 8r of Schedule 1.

[vasto7]

@Hal_Al 

Thanks for your help last year.

This year I paid for my son’s Fall 23 and Spring 24 academic expenses totally within calendar year 2023.  He received a 1098-T, but there are some odd things about it. 

1. For Box 1 they provide the value of the tuition for both Fall 23 and Spring 24, but it appears the school subtracted some scholarships paid directly to the school for Fall 23.  They did not subtract the scholarships provided by the school itself. 
2. For Box 5 they include scholarships provided by the school to my son, but only for Fall 23.  They did not include the Spring 24 scholarships, which were shown on the bill I paid at the end of calendar year 2023.

I want to make sure I handle all of this correctly, for both this year and next.

First, on the screen where you enter the 1098-T information, TT allows you to provide another value under the Box 1 number, which is described as the “full amount… Include all scholarships”  I assume I should add back in the scholarships that school subtracted from the Box 1 value and enter it in the cell provided?

Second, under Educational Summary you can edit the scholarship and grants.  In the “Other Scholarships” I assume I would enter all scholarships for both Fall 23 and Spring 24.  I assume this, because I paid the Spring 24 bill in calendar year 23.  However, come next tax year I would expect the 2024 1098-T will include in Box 5 the scholarship money that I have already accounted for in 2023, but was not in the 2023 1098-T for Box 5.  How would I handle that.  Or is TT smart enough to work everything out.

Thanks again for your help.

Regards

[Hal_Al]

Q.  Or is TT smart enough to work everything out?

A. No.

Q. Do I have to live with the 1098-T's I get in 2023 and 2023 (do I assume the school is right)? 

A No. 

 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.

[vasto7]

@Hal_Al 

As I did last year, I'm paying all tuition, fees, room and board, minus a scholarship, through a 529 distribution. Also, like last year, in order to get the AOTC credit I am assigning about $4,000 of a scholarship for my child to room and board.  All this went as expected.  However, this year I also redeemed some I-Bond that yielded $2,500 of interest income.  I would like to see if I can assign the interest to my child’s qualified expenses, so I can save some of the tax on the bond interest. 

I’m a bit confused about how to do this.  Should I assign another $2,500 to my child’s room and board, i.e. the amount equivalent to the bond interest?  I could assign up to the full amount of room and board and it would still be less than the scholarship value, but more than the bond interest. 

I know I have to go through the question on the interest income section and answer yes to “Did you use your U.S. saving bonds to pay for higher education expenses?”  When I get to that page “Report Educational Expenses and Benefits” would I enter the amount I assigned to room and board minus what I need for the AOTC credit for “Qualified Higher Education Expenses Paid in 2023”? 

What goes in the next box “Nontaxiable Educational Benefits Received in 2023”?

Thanks for your help.

[Hal_Al]

Room and board are not qualified expenses for the interest exclusion of cashing Savings and I-bonds. You must allocate  tuition to the Bond interest exclusion. Even books don't count.

If you have more bonds, the "trick" is to cash the bonds and contribute the proceeds to your 529 plan (within 60 days).  Then you can take a distribution from the 529 and allocate it to room and board.  

You do not allocate expenses to just the interest. You have to cover the entire bond proceeds, to exclude the interest. 

[vasto7]

I did not cash the bonds with the intent of using them for college payment.  After the fact, I am trying to make the best of a poor decision.  Unfortunately I am past 60 days on cashing the bonds.  I was hoping that something similar to the AOTC trick of making part of a scholarship taxable by assigning it to R&B would allow some part of the tuition to be paid with the bonds.  No such luck.

[Hal_Al]

Yes,  making part of a scholarship taxable by assigning it to R&B (or other non qualified expenses)  does  allow some part of the tuition to be allocated to  the bonds.  What you can't do is allocate room & board directly to the bonds and get the interest exclusion. 

Using an example: box 1 of the 1098-T is $10,000, box 5 is also $10,000.  By declaring all the $10,000 scholarship as taxable, you can allocate $4000 tuition to the AOTC and $6000 to the bonds.

If you also have a 529 distribution, you can allocate the room &board to the 529 distribution and allocate the scholarship to other non qualified expenses (transportation, clothing. recreation, other). To make some of the scholarship taxable (re-allocate some of the expenses), you must tell TT how much you want taxable by saying it was used for room &board. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B. 

[vasto7]

Ok. That is helpful, but I want to make sure of a few things.  At the screen asking if R&B was paid by scholarships or grants, after answering yes, I could assign up to the full amount of scholarship to R&B.  But I should actually assign the amount needed for the AOTC credit plus what ever amount of bonds I want to pay for tuition.

For the question asking if Saving bonds were used for higher education, I would answer yes.  When I get to that page “Report Educational Expenses and Benefits”  I enter the amount the of tuition I want the bonds to pay.

What goes in the next box “Nontaxiable Educational Benefits Received in 2023”?

[Hal_Al]

Q.  At the screen asking if R&B was paid by scholarships or grants, after answering yes,   I should actually assign the amount needed for the AOTC credit plus what ever amount of bonds I want to pay for tuition.

A. Yes. 

Q. For the question asking if Saving bonds were used for higher education, I would answer yes.  When I get to that page “Report Educational Expenses and Benefits”  I enter the amount the of tuition I want the bonds to pay.

A.  Yes.  Usually the full amount the bonds were cashed for.

Q. What goes in the next box “Nontaxiable Educational Benefits Received in 2023”?

A.  Nothing. There is no longer any tax free scholarships (“Nontaxable Educational Benefits") because you have made enough of  them taxable for what you want to do.