1098-T and taxable scholarships reporting

[catkik]

"Unless you mistakenly used that $5129 in calculating your 2023 tuition credit, you shouldn't need to amend your 2023 return. " - The school reported it as paid in 2023 even though it was tuition for Spring 2024. I don't know when it was actually paid. But I guess, since the school added it in box 1 in 2023, possibly, they applied it to tuition in 2023 - I don't know if it matters. 

[Hal_Al]

It only matters if you know it matters.  The 1098-T is not a controlling document. For tax purpose, you report the expenses and match the scholarships per your own records. 

The details are a little fuzzy to me, but the big picture appears to be it doesn't matter. 

[catkik]

I see what you are saying. Last year I reported the tuition expenses for Spring 2024 because the school reported it that way on 1098-T. So this year, I have a scholarship for Spring 2024, but the expenses were already reported the year before. That's where I don't know if it makes sense to just keep it as it as per the school's 1098 - because that's how I filed her taxes last year or amend last year's return before filing this year's. It looks like she will owe taxes this way or the other. Can I just keep the numbers as they are reported by the school on 1098-T? 

What is your recommendation?

[catkik]

Q. I am not allowed to report Spring 2024 tuition any more in 2024, right?

A. Right. But you are allowed to report that as "scholarships received was not designated for 2024 expenses.

Going back to your answer, here is another question:

If I mark, "scholarships received was not designated for 2024 expenses" and that is true in regards to that $5129 amount for Spring 2024. It is designated for 2024 expenses, but the tuition expenses were reported in 2023. So if I say, this amount is not designated for 2024 expenses, what do I do with it? Do I have to add it to 2023 scholarship amount? since that's when the tuition was paid for Spring 2024. 

Thank you very much!

[KrisD15]

1. Correct. You can go forward, but not back for reporting payments. 

You can pay in 2023 for a class that starts January 2024, but you can't pay in 2024 for a class that stared in December 2023.

You're saying that the classes started in 2024, but are on the 2023 Form 1098-T.

That would mean that the tuition was paid in 2023. If that is the case, how was that paid if the scholarship did not post until 2024? 

Do you usually pay some out-of-pocket?

Are there other scholarships?

What year is the student in?

Had you gotten any education credits in the past?

Does the scholarship cover tuition or is the scholarship more or less?

For credits and scholarships, don't factor Room and Board into the equation, only tuition and fees which should be on Form 1098-T and books and supplies which would have been purchased and not listed in Box 1 of he 1098-T count. Next, determine if any education credits were taken in prior years. 

It's confusing since school years cross calendar years. 

The main concern is- did you claim an education credit in 2023 using expenses that were later covered by the scholarship in 2024.

You may need to look at your 2023 return and determine how that would have changed had the scholarship posted in 2023. 

Below is how a scholarship received in early 2025 for 2024 classes is handled, you would need to change the years, 2023 for 2024 since you are asking about 2023 classes. 

HERE is how the IRS views it:

In your case change 2024 to 2023 in the following example 

Refunds. A refund of qualified education expenses may
reduce adjusted qualified education expenses for the tax
year or require repayment (recapture) of a credit claimed
in an earlier year. Some tax-free educational assistance
received after 2024 may be treated as a refund. See
Tax-free educational assistance, earlier.

Refunds received in 2024. For each student, figure
the adjusted qualified education expenses for 2024 by
adding all the qualified education expenses for 2024 and
subtracting any refunds of those expenses received from
the eligible educational institution during 2024.

Refunds received after 2024 but before your income tax return is filed. If anyone receives a refund after 2024 of qualified education expenses paid on behalf of
a student in 2024 and the refund is paid before you file an
income tax return for 2024, the amount of qualified education expenses for 2024 is reduced by the amount of the refund.
Refunds received after 2024 and after your income
tax return is filed. If anyone receives a refund after 2024

of qualified education expenses paid on behalf of a student in 2024 and the refund is paid after you file an income tax return for 2024, you may need to repay some or
all of the credit. See Credit recapture next

Credit recapture. If any tax-free educational assistance
for the qualified education expenses paid in 2024, or any
refund of your qualified education expenses paid in 2024,
is received after you file your 2024 income tax return, you
must recapture (repay) any excess credit. You do this by
refiguring the amount of your adjusted qualified education
expenses for 2024 by reducing the expenses by the
amount of the refund or tax-free educational assistance.
You then refigure your education credit(s) for 2024 and figure the amount by which your 2024 tax liability would have
increased if you claimed the refigured credit(s). Include
that amount as an additional tax for the year the refund or
tax-free assistance was received.
Example. You paid $7,000 tuition and fees in August
2024, and your child began college in September 2024.
You filed your 2024 tax return on February 17, 2025, and
claimed an American opportunity credit of $2,500. After
you filed your return, you received a refund of $4,000. You
must refigure your 2024 American opportunity credit using
$3,000 of qualified education expenses instead of $7,000.
The refigured credit is $2,250. The increase to your tax liability is $250. Include the difference of $250 as additional
tax on your 2025 tax return. See the instructions for your
2025 income tax return to determine where to include this
tax.

If you pay qualified education expenses in both
2024 and 2025 for an academic period that begins in the first 3 months of 2025 and you receive
tax-free educational assistance, or a refund, as described
above, you may choose to reduce your qualified education
expenses for 2025 instead of reducing your expenses for
2024. 
 

[catkik]

Thank you for your help.

Hope you can continue looking at my answers. 

So she did receive more scholarships. ALl the scholarships ($20629) received for the whole academic year of 2023-2024 were reported by the school on 2023 1098-T, except for one - $5129 that was reported on 2024 1098-T. So there was enough money to pay for tuition in 2023 for Spring 2024. We did not pay any out of pocket.

That was the student's first year in college. 1098-T checks that box as well that the scholarships are for an academic year. 

2023 1098-T then shows in box 1 tuition for both Fall 23 and Spring 24 semester. 

We did claim America Opportunity Credit for 2023 because we bought a computer - paid out pocket. So TT considered that qualified education expenses. 

This year we are not claiming AOC because all of her qualified exp were paid by scholarships. 

If we add that additional scholarship to the total, of 2023 scholarships then she would have to pay about $500 in total taxes in addition to the state tax she already paid last year. So that does not look like  a favorable amendment. 

And if I mark that some of the scholarships were not designated for 2023 expenses, then I would need to report that in 2024, right? But that's not favorable either since it will raise her income even higher. 

I am just trying to make sure that we can report the information as stated by the school on 1098-T and that would be accepted by IRS, even if that's not exactly how I see it to be reported. 

She will have to pay taxes for 2024 tax year anyway - because she had an internship in addition to the received scholarships. 

So the way I see it - she would have to pay taxes whether we would amend last year's or file this year's return with the numbers that the school provided. Since it's easier to go forward, I am considering just filing this year's return and paying taxes on the taxable scholarship income as reported by  the school 1098-T. Does that sound right? 

We will not ask for AOC because like I said, the qualified educational expenses are paid by the scholarships. 

Thank you.

[catkik]

You mentioned earlier that room and board is irrelevant.

I am confused though right now with our return. It looks like TT is calculating the taxable scholarship income based on the numbers I put in for room and board.

So I put in 1098-T as received from the school. But then added our expenses for books and then reported room and board from statements received from school. The school reported scholarships received only for Fall 2024, since Spring 2024 scholarships they reported on 2023 1098-T. 

So when TT asks for what amount of these scholarships was used for room and board, do I show only Fall 2024 expenses? or do I add Spring 2024 as well? 

[Hal_Al]

Room & board (R&B) are not qualified expenses for tax free scholarships or the tuition credit. So, R&B expenses don't help you with those two items.

There is a screen, in TurboTax (TT) that asks if any of the scholarship was used for R&B. Any amount you enter there will be treated as taxable income (because R&B are not qualified expenses for tax free scholarship).  This is one place where you can  tell TT to treat that much of the scholarship as taxable.  You have no need to be entering anything there if you are using the short cut to enter the taxable scholarship ($0 in box 1, taxable amount in box 5). 

[catkik]

Thank you! I think it finally makes sense.

So I can calculate the taxable income based on the total scholarships received minus the tuition and other out of pocket qualified expenses (namely, books) and put that amount in the Room and Board question, and TT will treat it as taxable scholarship income. Is that right?

Or I guess I can answer other TT questions and put nothing in R and B question, and it should calculate the same amount as well, right?

By the way, we don't claim any AOP credit, so I am not concerned about it here. 

Thank you!

[AmyC]

Yes, with no AOTC simply take the scholarships subtract all Qualified Education Expenses - Internal Revenue Service and you have the taxable amount.

View the tax form to be sure the correct amount is showing. The program asks a lot of questions and the IRS only receives the tax form. The shortcut of zero tuition and box 5 taxable scholarships is great.

[Hal_Al]

Yes, essentially.  But, it's best to have an idea of the anticipated outcome, as mistakes are easy to make.  Be on the look out, in the interview,  for screen titled Amount Used to Calculate Education Credit (or similar wording), verify the amount you want to use or change it ($0 if you don't claim any AO credit).

[OCDW]

Clarification please-

When entering the 1098T on the parent's return to claim the AOC credit, there is an option to check the "o" underneath Box 1 in TT which says "this is not what 'XX' paid to this school?" If we check this box, it asks for us to enter the full amount of tuition paid to the university. Do we enter the $4K in Box1 and nothing else? Or do we also check the box and enter the full amount of tuition as reported in Box1 1098T?

Some background, we have two kids receiving athletic scholarships, their Box5 exceeds Box1. We only want to claim the $4K on our return to claim the AOC and the rest of tuition and scholarships will be reported on their returns. 

[AmyC]

Keep it very simple and put $4,000 tuition and zero scholarship for each 1098-T. Do not adjust or do anything else. You get up to $2,500 per student.

The kids will then subtract $4,000 from the tuition box and add back any other expenses you may have paid for college items needed. The scholarship boxes will be the full amount.