Parent or Student or both enter 1098T?

[Trishav]

My student worked last year before college started and made approx $7,600.  So she will file her taxes, but she was 18 on Jan 1, so I will claim her as a dependent.  Her 1098-T has 48,070 in Box 1 and 51,484 in Box 5.  Do I enter that data in my taxes alone, not hers? or do we both enter the data from 1098-T?  I realize that the overage of $3,414 is taxable as room and board is not an education expense.  We have approximately $1,900 spent on "other educational items" such as books and laptops that aren't included in the 1098-T.

I have read several responses to similiar questions, but the amounts on the previous posts varied and I am unsure. 

Thank you so much

[AmyC]

The 1098-T  will end up being on her return for the scholarship income only - once the correct amount is determined. If you are claiming the education credit, it will also be entered in your return. The entries are very different.

You may want to increase your daughter's income a little to dramatically reduce your tax bill.

Education income and expenses are a very complicated area when done right. 

Each year:

1. do a quick run through of Whom May I Claim as a Dependent?
2. If claiming, (you will this year), check to see if you qualify for any college credits. Currently:
   • For the full credit, your MAGI (modified adjusted gross income) is less than $80,000 ($160,000 if you're filing jointly)
   • For a reduced credit, your MAGI is between $80,000 and $90,000 ($160,000 and $180,000 if you're filing jointly)
   • There is no credit given if your MAGI is above $90,000 ($180,000 if you’re filing jointly)
3. If you :

• qualify to claim education credit, your goal is $4,000 spent on tuition for maximum credit. The IRS allows juggling numbers. See example below.
• don't qualify: Box 5 minus Box 1 minus the additional  eligible school costs = amount to go on her return as scholarship income. Nothing on your return.

Example for claiming education credit:

$48,070 in tuition

$1,900 in misc required supplies

Total $49,970 is qualified school expenses. Qualified Education Expenses - Internal Revenue Service

Maximum credit:  Claim you paid $4,000 of that money, leaving $45,970 as eligible expenses.  This yields  up to $2,500 credit for you for $4,000 spent. 

Let's say scholarship was $55,000 so more of it went to room and board.

Scholarship - eligible expenses = $9,030 to add to student's income.

For other variations and references, please look at another of my answers for help. 

[Trishav]

Just to confirm you are saying that both she and I need to enter the 1098-T in both of our taxes separately?  I will claim her as a dependent and I meet the full credit guidelines below.

• For the full credit, your MAGI (modified adjusted gross income) is less than $80,000 ($160,000 if you're filing jointly)

Where do I enter the portion below? On the "Other educational expenses" screen? not the 1098-T? I enter the 1098-T as exactly shown on both of our returns correct?

" Claim you paid $4,000 of that money, leaving $45,970 as eligible expenses.  This yields up to $2,500 credit for you for $4,000 spent. "

[AmyC · Accepted solution]

Yes. Yes, Yes,  You will enter the 1098-T on your return like this:

1. Enter the student
2. school name
3. 1098-T, yes
4. fill in form, with boxes 1 and 5 using the actual numbers
5. tax free benefits, no, continue
6. scholarship on W2, no, continue
7. another school, no, continue, continue
8. Books, yes, drop down, enter $1900, continue, continue, continue
9. Amounts not for 2022? select, continue
10. room and board with scholarship? Yes, enter room and board paid with scholarship, $5514, should give you  the $4k expenses paid for your AOTC credit but double check - click on the Is there a way to increase my credit? link for more information and help, continue
11. four years credit? no, continue
12. first year, select, continue
13. ever receive?, select, continue
14. felony, select, continue
15. education expense summary
16. maximize my tax break
17. Good news, AOTC and the amount. The first $1500 reduces your tax liability. The next $1,000 is a refundable credit.

Enter the 1098-T on her dependent return, there is no AOTC credit allowed, the program will determine the taxable amount. She will have income from $51,484 - ($44,070+1900) = $5514, if these are the accurate numbers. It matches what you put for room and board 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 your example: Student has $51,484 in box 5 of the 1098-T and $48,070 in box 1. At first glance he/she has $3414 of taxable income and nobody can claim the American opportunity credit. But if she reports $7414 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 $1900 in expenses for those course materials, paid out of pocket, she would only need to report $5514 of taxable scholarship income, instead of $7414.

[Hal_Al]

You may 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. The 1098-T that you enter in TT is not sent 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, last year, were 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 ($5514 in your case) and enter the 1098-T, on his return, with 0 in box 1 and the  taxable amount  in box 5.