Who enters 1098-T when dependent child had earned income and college expenses were scholarship?

[sunshinejoe]

Dependent child earned a bit under $13K as W2 income in year 2023. Also, dependent child received 1098-T from college which included scholarship/grants of around $7K, with payments to the school for half that amount ($3.5K unearned income). There were no out-of-pocket school expenses.

Dependent child will file taxes for earned income but who should enter 1098-T, (a) the parent who claims dependent child, or (b) the child who will file taxes, or (c) both, parent and child???

When 1098-T is entered by parent, it makes no difference to the return/refund amount. When child enters 1098-T, it reduces child refund by $300. 

By the way, ALL ITEMS BELOW ARE TRUE FOR THE STUDENT (According to IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf)

- Is under the age of 24 on Dec 31 of the tax year and:

- Is enrolled in an undergraduate program at an accredited institution and:

- Is enrolled as at least a half time student for one academic semester that begins during the tax year, (each institution has their own definition of a half time student) and:

- the student provides less that 50% of the student's support (scholarships/grants received by the student do not count as the student providing their own support).

[KrisD15]

If there are no expenses to apply towards an education credit  (if all tuition, fees, book and supplies were paid for with scholarships)

then there is no need to enters the 1098-T on the parents return. 

Since there is taxable income from the scholarships, the student will enter the 1098-T on the student's dependent return and claim the taxable income. 

There is one other option which is to have the student claim all 7,000 scholarship as earned income if it was used for something other than tuition, such as Room and Board, in which case you could use the 3,500 tuition (plus out of pocket costs for books, supplies) towards a credit. 

If you decide to make more taxable income for the student in order for you, the parents, to be eligible for a credit, you will need to increase the income the student claims. 

When you enter the 1098-T into the student's TurboTax account, the program should ask if the student needs to claim more. 

IRS Pub 970 shows some good examples of coordinating credits and taxable income for the student. 

[sunshinejoe]

Thanks for the response.

The student/dependent used 1/2 the scholarship money for tuition and kind-of 'banked' the other half (used it for everyday expenses while going to school). So, no room and board expenses.

Unfortunately, there is no credit eligibility to the parent in either of scenario (child reporting 1098-T or parent reporting 1098-T instead). BUT, if parent reports it instead of child, it lowers taxable income on child, and adding a $300 refund 🙂

Still confused as for what to do (whichever is right).... 😕

[Hal_Al]

Is your income, so high that it makes you ineligible for the tuition credit ( $90K Single or Head of Household, $180K Married filing Jointly). If not, there is a way to claim a tuition credit (unless his scholarship is restricted). 

You say "BUT, if parent reports it instead of child, it lowers taxable income on child, and adding a $300 refund".

You're not allowed to report his taxable scholarship on your return.  He must report it on his return.   You are allowed to report the box 1 tuition (1098-T) plus any book and computer expenses, on your return to claim the tuition credit. 

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.