student expenses

Forum|Forum|6 years ago
February 15, 2020
4 replies
35 views

My son was a full time student last year. He commuted to a university. His expenses were 7,379. (box 1 of 1098 T) for school expenses plus 934. for required books etc. He received 6,281 (box 5 of 1098 T) in grants from the state and federal. This leaves 2032 paid out of pocket. why does the calculator say that he does not receive any tax credit; instead he has to pay taxes on the 6281? He has not received 4 years of the American Opportunity credit. He made under $1000. last year, and he is a dependent on parents taxes.

DavidS127

Alumni - Intuit

Here are some steps to take to diagnose the issue with your education expenses:

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Check you answer to that question in TurboTax.
Check your entry of the Form 1098-T to make sure you entered the correct amounts and checked all the boxes in TurboTax that are checked on the actual Form 1098-T.
Even though your son commuted, check your response to the question about if your scholarship was used for room and board. To the extent you used a scholarship for room and board instead of "qualified" education expenses such as tuition and books, it is taxable to the scholarship recipient.
Check your response to the question about whether your scholarship was payment for teaching, research, or other services. If it was, it is taxable.
Education expenses for tuition are generally considered qualified only if paid to an eligible institution.
The American Opportunity Tax Credit (AOTC) has several qualifications, including a limit on your adjusted gross income. Compare your situation to thethe AOTC qualifications at this IRS link.

If these steps don't identify the issue, see IRS Publication 970 at this link for the complete rules on whether you education expenses are qualified and whether your scholarship is taxable.

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taxesaproblemAuthor

Level 2

I checked everything. I don't see any mistakes. It still says we have to pay taxes on the 6281.

Carl

Level 11

You keep jumping between "he" and "we" in your posts. So it's not really clear on whose tax return you are claiming/reporting the education expenses. Since he qualifies as your dependent, you should be claiming him as your dependent. His earnings just flat out do not matter. The student could earn a million dollars and still qualify as your dependent.

Likewise, to qualify as your dependent there is no requirement for you the parent to provide the student any support. Not one single penny. The support requirement is on the student, and only the student. So it's quite apparent that the student did not provide more than half of their own support if he only had $1K of earned income in 2019.

So when dealing with the education stuff on your (the parent's) return, understand that "ALL" scholarships, grants and 529 distributions are taxable income *INITIALLY*. That taxability is offset by the "qualified" education expenses those scholarships, grants and 529 distributions are used to pay for. Therefore, it is "IMPERATIVE" that you work through the education section the way it is designed and intended to be used. If you don't, chances are "HIGH" that scholarships, grants and 529 funds received will not be applied to qualified expenses, therefore making that income taxable.

It's also even more important as you work through the education section, that you read the small print, all of it, on every single screen. In many cases that small print matters, big time.

Also see https://ttlc.intuit.com/community/college-and-education/help/why-is-my-scholarship-taxable/00/26267 for a few more details.

AmeliesUncle

Level 15

@taxesaproblem wrote:
he is a dependent on parents taxes.

The 1098-T needs to be entered on the parent's return. If expenses (box 1 plus other qualified expenses) is larger than scholarships (Box 5), there is no need to enter the 1098-T on the student's return (unless the student elects to makes some of the scholarship taxable).