1098-T Overage - Box 5 greater than box 1

[jfm2023]

My daughter's 1098-T is showing box 5 (scholarships or grants) exceeded box 1 (payments received for qualified tuition).  Her SSN appears on the document, but my understanding is that I, the parent, should enter the 1098-T on my tax return because I am claiming her as a dependent. Does this mean that I have to pay taxes on the overage?  What if I enter in other educational expenses such as room and board, that is not covered under box 1, that is more than the overage. Will I still have to pay taxes on it?

[DawnC · Accepted solution]

Yes, you would have to pay taxes on the excess.   And yes, you could add other qualified expenses to lower the amount of tax due, but room and board is not a qualified expense.   See Qualified Expenses.   Expenses that do not count:

• Room and board
• Insurance
• Medical expenses (including student health fees)
• Transportation
• Similar personal, living, or family expenses

You can also have the student claim the excess scholarship, possibly at a lower rate.   Although, that income may be subject to the kiddie tax, but could still be less than your tax, depending on your tax bracket.   Try it both ways and see what works out best.  

[dcalvis]

Hello -- I am in the same situation, that is, Box 5 of Form 1098-T exceeds Box 1. I accept that the overage is taxable, and would be happy to pay the tax. Trouble is, TurboTax is telling me that my daughter must declare this income on her own tax return, and she has already filed. Is there some way to tell TurboTax that I want to pay the tax rather than her? Thanks.

[dcalvis]

And may I please add a related question. Suppose a student receives other scholarship monies during the freshman year, say, that are not needed to meet college expenses this year but will be needed in future years. Say that those monies are disbursed directly to the student, and the student puts that money away in a 529 for future use. Also suppose that at the time the monies are given, it is not clear whether they will ultimately be used for a qualified expense like tuition or a non-qualified expense like room and board. How does the IRS view those monies? In the end we could look back and say that they were -- or were not -- taxable, depending on how they wind up being spent, but we don't know any of that yet. These monies don't appear on any 1098-T or W-2. Should you/how do you report this money in such a case? Again thanks.

[KrisD15]

Payments can be made for expenses of the year the scholarship is received and/or the first three months of the following year, however, the treatment of that scholarship must be made for the tax year the scholarship was received. 

In the example you provide, no payment was made, therefore the scholarship must be claimed as taxable income by the student. 

Putting the scholarship into a 529 Account is not the same as prepaying tuition. 

[dcalvis]

Thank you, this is very helpful. May I please ask a follow-up just so I am clear. Suppose a college-bound high school senior receives a $1000 cash graduation present from Grandma as well as a $1000 scholarship from a local civics organization. Student applies both to room and board at college. I assume the gift from Grandma would not be taxable? And yet the scholarship would be? If so, then would the reason be that unlike Grandma's gift, the scholarship was given as a scholarship and for no other reason, and is thus treated differently under the tax law?

What if Grandma writes a note with her gift stipulating that this money is to be used for college? Does that make her $1000 a scholarship just like the other scholarship, so now Grandma's gift is taxable?

Again, just trying to understand. Thanks, this board is a great resource.

[AmyC]

Grandma's usually give nontaxable gifts. A local civic group just gives and it may be taxable. Tax Topic 421 taxation and reporting of scholarships, fellowships and other grants explains what is taxable or not and how to report.

 You need to determine if you qualify for an education credit or not as that also influences who files what.  The IRS has a great brochure that explains how scholarships and tax credits interact.

@dcalvis