1098-T for a dependent with no other reported income

[paulkem]

My college student daughter (my dependent) received a 1098-T from her university for her scholarships, which both came from the university and were reported to the university from external sources. The amount in box 5 is $19,475. The amount in box 1 is $9,196. She does not have any other reported income (i.e. W-2's).

1. Does she need to fill out a return for this?

2. What do I need to do with this for my return.

It may also be worth noting that my wife and I had been paying into a 529 account and did use $1,000 of that to pay for an iPad for her school use.

Thanks

[AmyC]

1. It depends.

• No, she does not need to file since her scholarship income is her only income and it is below the filing threshold - if you use the numbers as they are on the form.
• Yes, if you qualify for the education credit and use the numbers as the IRS recommends. The IRS has a great brochure that explains how scholarships and tax credits interact.

2. It depends.

• If you qualify for the education credit, add the 1098-T to your return a special way.
• If you do not qualify for the education credit, ignore it.

The 529 can go towards room and board expenses even if she lives at home. See 529 qualified Room and Board  and Qualified Education Expenses - Internal Revenue Service.

The credit and income limits:

• 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)

If you qualify for the credit:

• On your return: Enter the 1098-T with $4,000 tuition and zero scholarship to get the program to get the right information. You don't need to enter anything else for expenses. This gives you up to $2500.
• On her return: Enter the 1098-T with the remainder of the tuition (after the $4,000 you took out) and enter the full scholarship amount.  Enter additional expenses, books, other required expenses. There may or may not be a small tax liability.

[paulkem]

If I am understanding correctly, if I fill out the forms and qualify for the education credit, then she does need to file as well?

I guess the first step is that I need to determine whether we qualify. I will need to get to the MAGI calculation. I assume that if I use TurboTax Online (or probably any other service), it will ask the questions to guide me to whether A) I qualify and B) what I need to do next?

I did not know that you could use the 529 if the student live at home. We plan on using to help her pay rent in an apartment next year.

[AmyC]

Yes, if you qualify, you will both claim the form on your taxes but using the very different methods I mentioned above. You can go ahead and enter the 1098-T with the $4,000 tuition on your return and the program will tell you if you qualify for the deduction. 

If you don't qualify, no need for her to file the 1098-T. She only files it if you do.