Turbo Tax lists Scholarship form 1098_T as Income

[BillC_60]

My dependent school scholarship is being identified as taxable income on her MA state return even though I checked the boxes that it was used for tuition. Can't seem to fix this. It does not show in federal form as income.

[KrisD15]

In order to try to help, we need a few clarifying questions answered.

If the student is your dependent, did you enter the 1098-T into your TurboTax program? 

If the only scholarship that the student received was used for tuition, why is the scholarship amount reported/entered in the student's TurboTax program? 

[BillC_60]

Yes, I did enter the 1098-T in my return. But also it was entered in my student's return as I thought it might be needed given that I put a ESA distribution that my student was a benificiary.

[KrisD15 · Accepted solution]

If the scholarship is not taxable on the federal return, it would not be taxable on the Massachusetts state return. 

If the distribution was used for education expenses, the 1099-Q need not be entered, HOWEVER, the expenses that the distribution paid cannot be used towards an education credit if you decide not to claim the distribution. 

It is a balancing act. 

For TurboTax, it is best to enter ALL the forms into your TurboTax program so that the program can do the math. 

If you are claiming the student, the 1099-Q issued to the student may be entered into your program. The program will ask who the 1099-Q belongs to and you will have the option of selecting the dependent student. 

If you are eligible for an education credit, the program will normally allocate expenses towards a credit first, next towards any scholarship, and lastly towards the distribution.  Normally a credit is worth more than the tax on the distribution and the student would need to claim that (on the earnings only).

You can type   letme   into your program to see which credits you are eligible for and change the selection if you so desire. 

Your program does all the work and tells you HOW MUCH (if any) income the student needs to claim. Please don't reenter the same forms twice. 

According to Mass.gov: 

“Scholarship and grant amounts are included in Massachusetts gross income to the extent that they are included in federal gross income under Internal Revenue Code § 117. Amounts that are not so included are not taxable in Massachusetts. G.L. c. 62, § 2. "Qualified scholarship" amounts are excluded from both federal and Massachusetts gross income and are not subject to Massachusetts personal income tax.”

MA SOURCE ​​​​​​​