1098T- Box 5 exceeds box 1

[Megumi47]

Hi! I cannot figure out what to do. I am a full-time college student and I received my 1098T form from my university yesterday. In Box 5 (My total number of scholarships received), the number is around $24,000. In box 1 (Qualified tuition and expenses), the total number is around $10,000. When I input this information when doing my taxes, it considers that $14,000 difference as income. Taxable income. The problem is I did not receive any of that $14,000 as income. In fact, the full $24,000 was applied to my account and it still didn't cover all of my charges(This includes meal plan and room and board). After the full $24,000 was applied to my account, I paid the remaining balance out of pocket. Turbo tax gives me the option to change box 1, and I thought I was supposed to do that. But I am also seeing that I am not supposed to(according to other threads on here). This is confusing to me as they would change my income for the year from $11,000(How much I made from working and is recorded on my W2's) to $25,000 due to the $14,000 difference from my 1098 T. But like I said above I did not receive this money. I did not get any type of refund and had to pay the remaining balance myself. Does anyone know what to do here?

[KrisD15]

If I understand correctly, only 10,000 went to the school and the remaining 14,000 went to other things, like Room and Board. 

Funds used to pay for Tuition, Fees, Books and Supplies is tax-free.

Funds used to pay Room and Board are taxable to you. 

It is like the 10,000 of the scholarship went to the school to pay tuition.

Then 14,000 WOULD HAVE GONE TO YOU, thus taxable, but rather than go through your hands and back to Campus, the school paid for your room directly.

IRS Pub 970

[Megumi47]

Thanks for responding!

Quick follow up. So the fact I did not receive a refund doesn't matter? With this "Added income" I will now owe money since $14,000 is a lot( And I also worked to pay the rest of my tuition) so I wanted to be sure. 

Second follow up so I can understand: I am essentially paying taxes on the scholarships given by my university for room, meal, and other non-qualified expenses even though I am not receiving any of this money personally and it doesn't cover everything.

[Vanessa A]

Correct.  It does not matter if you received a refund of the money or not.  it sounds like this was a scholarship that had an intended use and could only be used for what it was meant for, which in this case was room and board. Since you received scholarship money and it was used for anything other than qualified education expenses, it becomes taxable income.  The fact that it WAS used to cover those non-qualified expenses is all that matters to make it taxable. It does not matter that the school paid the expenses directly and you never actually touched the money.  

And yes, since you have income from working, if your employer did not withhold taxes from your wages (which they likely did not due to it being below your standard deduction of $14,600) this will likely cause you to owe taxes on the scholarship money that was used to pay expenses other than qualified education expenses. 

How old are you?  Are you still claimed as a dependent on your parents return? If not, it is possible that you would be able to claim the American Opportunity Tax Credit to offset some of the taxes that are owed due to the scholarship since you also worked to pay for the rest of your tuition.  If you used the $11,000 you earned from work to pay for tuition, this could count towards the AOTC.  This credit is worth up to $2,500. If your parents claim you as a dependent on their tax return, you would not be able to claim this credit. 

"Who can claim an education credit?

There are additional rules for each credit, but you must meet all three of the following for both:

1. You, your dependent or a third party pays qualified education expenses for higher education.
2. An eligible student must be enrolled at an eligible educational institution.
3. The eligible student is yourself, your spouse or a dependent you list on your tax return.

Who cannot claim an education credit?

You cannot claim an education credit when:

• Someone else, such as your parents, list you as a dependent on their tax return
• Your filing status is married filing separately
• You already claimed or deducted another higher education benefit using the same student or same expenses (see Education Benefits: No Double Benefits Allowed for more information)
• You (or your spouse) were a non-resident alien for any part of the year and did not choose to be treated as a resident alien for tax purposes (find more information in Publication 519, U.S. Tax Guide for Aliens)" Education Credits AOTC LLC

[Hal_Al]

You can wipe out the tax on all that income because of a loop hole on scholarship income*.  For specifics, answer these questions:

What was your age on 12/31/24?

Do you qualify as your parent's dependent?

Are your parents eligible for the tuition credit (is their income under $160,000 to $180,000 filing jointly $80-90K  single or head of household)?

Is the scholarship restricted. That is, must the first $10,000 go for Tuition?

Do you have any other qualified expenses, books, a computer and other course materials?

*General principle

There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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 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.

Second General Principle

While technically there is a provision that allows your student-dependent to claim a federal tuition credit, from a practical matter it seldom works out.  A full time student, under age 24, is only eligible for the refundable portion of the American Opportunity Credit (AOTC) if he/she supports himself by working. She cannot be supporting herself on student loans & grants and 529 plans and parental support.  It is usually best if the parent claims that credit.  

If the student actually has a tax liability, there is a provision to allow him to claim a non-refundable tuition credit. But then the parent must forgo claiming the student as a dependent, and the $500 other dependent credit.  The student must still indicate that he can be claimed as a dependent, on his return. This is worth up to $2500 (AOTC shifts to all non refundable)

[Momof2boyz]

If the scholarships are not restricted, how do you account for the actual amount that was paid out-of-pocket for the rest of the tuition (part not covered by scholarships that was paid with money made by working)?  Also, how is this amount factored into the 1098-T?  

[Hal_Al]

Q. If the scholarships are not restricted, how do you account for the actual amount that was paid out-of-pocket for the rest of the tuition (part not covered by scholarships that  paid with money made by working). 

A. You enter your expenses, you enter your scholarship amount.  The difference is considered paid by  you. 

Q. How is this amount factored into the 1098-T?

A. In TurboTax (TT), you enter your expenses, you enter your scholarship amount.  The difference is considered paid by you and TT will calculate the tuition credit based on those entries. 

What are you trying to do? You mention "paid with money made by working". That indicates you might be a student dependent trying to claim the credit on her own tax return.  The rule is not how much tuition you paid with work money, it's how much of your total support came from working.  That's a separate issue from the calculation of the tuition credit.  You make no entries about that in the 1098-T interview. 

There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. It is usually best if the parent claims that credit. 

You cannot claim the (up to) $1000 refundable credit if you are, or can be, claimed as a dependent by someone else.

Reference: Line 7 instructions for form 8863.

https://www.irs.gov/instructions/i8863#en_US_2024_publink53002gd0e674

[KrisD15]

You've added to a question thread of another person that had a different situation than you. 

If you can provide specifics to your tax situation, we might be able to help further. 

To try to answer your specific questions, the 1098-T is reported by the school, and only reports what the school received as payments for tuition and fees (Box 1) and what went through the school as far as scholarships that were issued in the name of the student (box 5)

You also usually have expenses not listed on Form 1098-T, such as books and supplies. All these expenses can be used for an education credit and/or to offset the tax on scholarships. 

Room and Board is also an expenses but can only offset tax on a education savings distribution (1099-Q). You can "allocate" scholarships to Room and Board, but that makes the scholarship reportable income (and potentially taxable income, it depends on your total income).

How is the out-of-pocket amount factored on Form 1098-T ? 

Part of your "out-of-pocket" costs are reflected in the difference between Box 5 and Box 1.  If the school says 10,000 was paid (Box 1) and 9,000 was scholarships, (Box 5) that would show that 1,000 came from somewhere else, usually paid out-of-pocket. 

You would, in this example, have 1,000 to apply towards a credit and no taxable income (from the 1098-T)

You also continue through the Education interview after entering Form 1098-T where you can tell the TurboTax program of other expenses you paid for that are not listed on the 1098-T, and also if any part of the scholarship in Box 5 was used for something other than the expenses listed in Box 1. So for the example above, you can indicate that only 6,000 scholarship went to pay tuition which means 3,000 paid something else. You still have the 1,000 out-of-pocket, so that would give you 4,000 towards a credit. 

You would, in this example, have 4,000 to apply towards a credit and 3,000 taxable income (from the 1098-T). The credit is usually more than the tax, so you usually come out ahead. 

Pub 970 explains further and has some great examples of how to get the best break when you are paying for school. 

@Momof2boyz 

[Momof2boyz]

@KrisD15,

Thank you so very much for your reply. Here is my specific tax situation and questions. I have a 20-year-old son in college who earned several scholarships. He also works two jobs. I am specifically confused about the IRS Tax Loophole regarding the scholarships and the AOC credit and all of the examples using the $4,000 qualifiable tuition expense amount when Form-1098 Box 5 exceeds Box 1. Even with the scholarships, my son still paid out-of-pocket for the remainder of his total expenses using money he earned from a job ($2,809.45). This amount is not listed on the Form-1098. I have manipulated the numbers multiple times using the Tax Loophole examples...putting $4,000 in box 1 and leaving box 5 blank on my return while on his return, leaving box 1 blank and putting the difference between block 5 and block 1 minus books ($409.45) in block 5 ($9,278.11)--  compared to entering the Form-1098 as it states.  The difference in refund between the two ways on our return is $3,000, so I really need to ensure that I am doing it all correctly.  It does not make sense to me to receive thousands of dollars back from the AOC when we did not pay anything for the actual tuition. That's what I can't understand. Am I supposed to use the $2,809.45 in my block 1 instead of the $4,000? I am aware that only tuition is a qualified expense and not taxable. I am aware that the amount of scholarships applied to room and board is taxable and that he needs to claim these as income. I am aware that he can not claim educational credits if he is claimed as a dependent on our taxes. I know the credits work off claiming expenses reported in Box 1 on the 1098-T. There are no restrictions on his scholarships. He can apply them to tuition or room and board. My son pays all of his expenses for housing and meals with his scholarships. He pays for his own gas and personal expenses. He only comes home for holidays.

Form 1098-T Box 1:  $11, 116.44.    Box 5:  $20,804.00. 

(1)  How can I do the tax loophole correctly? 

(2)  What amounts need to be entered on his return for Box 1 and Box 5?

(3)  What amounts need to be entered on our return for Box 1 and Box 5?

(4)  How do I then answer the TT interview questions correctly?

(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098? Do I use this amount instead of the $4,000?

(6)  Should I claim him as a dependent?

(7)  Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

Thank you so much!  

[KrisD15]

First of all, an education credit can be valuable. If an education credit can be taken, it is taken by the Taxpayer that claims the student.

When a student is away at school, that is the same as living at home when determining if the student is a dependent. As long as the student does not supply more than half their own support, they are a dependent.

You don't have any 529 education savings distributions (Form 1099-Q) so we are only dealing with Scholarships. 

Yes, usually it is advantageous to take 4,000 education expenses and apply that towards a credit. 

Yes, you are allowed to "move" expenses and scholarships, but you can't just make things up. 

Scholarships can be ALOCATED to different expenses, such as tuition or room and board. 

Your 1098-T is reporting that tuition paid for 2024 was 11,116 and that the student received scholarships in the amount of 20,804. 

(Compare this to the student school statement to verify that these amounts are correct)

So with these numbers, the 1098-T is showing that the student received 9,688 more in scholarships than what he paid for tuition. 

If he also paid 409 for books (which would not be listed in Box 1 on the 1098T) the scholarship is 9,279 over. 

Scholarships used to pay tuition are not taxable.

Scholarships used to pay room and board ARE taxable.

You have the right to allocate the scholarship either way. (because the scholarship was not restricted to tuition only) 

If you ALLOCATE 4,000 of the tuition expenses to go towards a education credit, the student would need to claim an additional 4,000 in scholarships, so in your case 13,279 ( 9,279 + 4,000). 

With his wage income, he would need to file and claim 16,088 income (13,279 scholarships and 2,809 wages) 

The tax on his income of 16,088 would probable be less than the education credit you would get, so it is probably beneficial for you to claim the credit this way. 

(1)  How can I do the tax loophole correctly?

     The program will try to get you the credit. The student is your dependent so you should enter the 1098-T into your TurboTax program, and continue through the interview. Be sure to enter the additional expenses such as Books and Supplies. Was he required to have internet service to do any online classes or homework? If yes, a potion of that expense can be included. Room and Board are NOT included as education expenses for the credit. 

     At the end of the interview the program will give you an option to "Maximize my tax break". When you select this, the program will likely suggest the student claim income so that you can claim 4,000 expenses for the American Opportunity Tax Credit. (other restrictions may apply, such as your income)

     In your situation, the scholarship income the student will need to claim should be around 13,279.

(2)  What amounts need to be entered on his return for Box 1 and Box 5?

     Do not alter the 1098-T if the numbers are correct. Enter the form as it was reported to you. If the numbers are WRONG, you can adjust by using the link under Box 1 "What if this is not what I paid?" This might occur if a scholarship crossed a calendar year or the student received a refund from a class. 

(3)  What amounts need to be entered on our return for Box 1 and Box 5?

     Again, you are not altering the 1098-T, only allocating some of the amount in Box 5 to the student which the TurboTax program should do for you. If you were doing this on paper you would allocate part of Box 5 by 4,000 and have the student claim that EXTRA 4,000, but when using TurboTax, you don't do that, the program should. 

(4)  How do I then answer the TT interview questions correctly?

     The program will ask about any other expenses and you will enter the amount spent on books and supplies. There will also be questions asked in regards to the credit. The credit can only be claimed four times per student. The student is in the first four years of the degree (for 2024) as long as the student had not graduated with a Bachelor's degree in 2023 or before.  

(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098? Do I use this amount instead of the $4,000?

     The out of pocket payment will not be addressed. You only report what was paid and how much scholarship was received, the program does the math. 

(6)  Should I claim him as a dependent?

     YES, from what you say, I believe he is your dependent. You can verify this by entering his information into your "Personal Info" section and the program will tell you if he is your dependent. The time a student is away at school is considered as time living at home.

(7)  Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

     NO.  There are situations where an education credit can be obtained, but the Parent/Taxpayer that can claim the student can't use the credit (because of income limitations). If the student has a large tax liability it might be advantageous for the parent to not claim the dependent student and let the student claim the "NON-REFUNDABLE" portion to lower his tax liability, but this is not the case in your situation. 

     He will need to file a federal tax return as a dependent and claim his wages and the scholarship income on his return. 

     If he needs to file a state return, he would file as a resident for the state in which you live. He may also need to file as a non-resident for the state in which he earned the income. 

IRS Pub 970 has some great information and examples that you might find helpful

@Momof2boyz 

[KrisD15]

First of all, an education credit can be valuable. If an education credit can be taken, it is taken by the Taxpayer that claims the student.

When a student is away at school, that is the same as living at home when determining if the student is a dependent. As long as the student does not supply more than half their own support, they are a dependent.

You don't have any 529 education savings distributions (Form 1099-Q) so we are only dealing with Scholarships. 

Yes, usually it is advantageous to take 4,000 education expenses and apply that towards a credit. 

Yes, you are allowed to "move" expenses and scholarships, but you can't just make things up. 

Scholarships can be ALOCATED to different expenses, such as tuition or room and board. 

Your 1098-T is reporting that tuition paid for 2024 was 11,116 and that the student received scholarships in the amount of 20,804. 

(Compare this to the student school statement to verify that these amounts are correct)

So with these numbers, the 1098-T is showing that the student received 9,688 more in scholarships than what he paid for tuition. 

If he also paid 409 for books (which would not be listed in Box 1 on the 1098T) the scholarship is 9,279 over. 

Scholarships used to pay tuition are not taxable.

Scholarships used to pay room and board ARE taxable.

You have the right to allocate the scholarship either way. (because the scholarship was not restricted to tuition only) 

If you ALLOCATE 4,000 of the tuition expenses to go towards a education credit, the student would need to claim an additional 4,000 in scholarships, so in your case 13,279 ( 9,279 + 4,000). 

With his wage income, he would need to file and claim 16,088 income (13,279 scholarships and 2,809 wages) 

The tax on his income of 16,088 would probable be less than the education credit you would get, so it is probably beneficial for you to claim the credit this way. 

(1)  How can I do the tax loophole correctly?

     The program will try to get you the credit. The student is your dependent so you should enter the 1098-T into your TurboTax program, and continue through the interview. Be sure to enter the additional expenses such as Books and Supplies. Was he required to have internet service to do any online classes or homework? If yes, a potion of that expense can be included. Room and Board are NOT included as education expenses for the credit. 

     At the end of the interview the program will give you an option to "Maximize my tax break". When you select this, the program will likely suggest the student claim income so that you can claim 4,000 expenses for the American Opportunity Tax Credit. (other restrictions may apply, such as your income)

     In your situation, the scholarship income the student will need to claim should be around 13,279.

(2)  What amounts need to be entered on his return for Box 1 and Box 5?

     Do not alter the 1098-T if the numbers are correct. Enter the form as it was reported to you. If the numbers are WRONG, you can adjust by using the link under Box 1 "What if this is not what I paid?" This might occur if a scholarship crossed a calendar year or the student received a refund from a class. 

(3)  What amounts need to be entered on our return for Box 1 and Box 5?

     Again, you are not altering the 1098-T, only allocating some of the amount in Box 5 to the student which the TurboTax program should do for you. If you were doing this on paper you would allocate part of Box 5 by 4,000 and have the student claim that EXTRA 4,000, but when using TurboTax, you don't do that, the program should. 

(4)  How do I then answer the TT interview questions correctly?

     The program will ask about any other expenses and you will enter the amount spent on books and supplies. There will also be questions asked in regards to the credit. The credit can only be claimed four times per student. The student is in the first four years of the degree (for 2024) as long as the student had not graduated with a Bachelor's degree in 2023 or before.  

(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098? Do I use this amount instead of the $4,000?

     The out of pocket payment will not be addressed. You only report what was paid and how much scholarship was received, the program does the math. 

(6)  Should I claim him as a dependent?

     YES, from what you say, I believe he is your dependent. You can verify this by entering his information into your "Personal Info" section and the program will tell you if he is your dependent. The time a student is away at school is considered as time living at home.

(7)  Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

     NO.  There are situations where an education credit can be obtained, but the Parent/Taxpayer that can claim the student can't use the credit (because of income limitations). If the student has a large tax liability it might be advantageous for the parent to not claim the dependent student and let the student claim the "NON-REFUNDABLE" portion to lower his tax liability, but this is not the case in your situation. 

     He will need to file a federal tax return as a dependent and claim his wages and the scholarship income on his return. 

     If he needs to file a state return, he would file as a resident for the state in which you live. He may also need to file as a non-resident for the state in which he earned the income. 

IRS Pub 970 has some great information and examples that you might find helpful

@Momof2boyz 

[Hal_Al]

Q(1)  How can I do the tax loophole correctly? 

A(1)  Use the short cuts and don't get bogged down in the interview. See Q2 & Q3. 

Q(2)  What amounts need to be entered on his return for Box 1 and Box 5?

A(2)  0 in box 1 and $13,279 in box 5 (20804 -11116 - 409 + 4000 = 13,279)

Q(3)  What amounts need to be entered on our return for Box 1 and Box 5?

A94)  4000 in box 1; 0 in box 5

Q(4)  How do I then answer the TT interview questions correctly?

A(4) Enter no other numbers.  Yes, he's working on a degree. Full time student. No to books or loan payments. No to scholarships. No to 4years of college. Last three questions answer based on your facts. 

Q(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098?

A(5)  It is not entered any where.  It's included in the $4000 that is no longer covered by tax free scholarship. You never enter payments, per se. You enter expenses only and then allocated them to the tax attributes (scholarship, tuition credit, 529 distribution). Notice that there's no where to enter student loan payments either. 

Q (5b) Do I use this amount ($2809) instead of the $4,000?

A(5b) No.

Q(6)  Should I claim him as a dependent?

A(6)  Yes. Everything you described says he's still your dependent. Equally important nothing you described qualifies him for any AOTC, if he isn't your dependent. 

Q(7)  Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

A(7)  No.  He states he can be claimed as a dependent and will be claimed as a dependent

With his wage income, he will exceed the filing requirement and report $16,088 of income (13,279 scholarships + 2,809 wages). $16,088 -14,600 standard deduction = $1488 taxable income x 12% =$179 tax, allowing you to claim the $2500 AOTC.  The "kiddie tax" will apply. I assume the parents marginal tax rate is 12%.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

Taxable scholarship goes on line 8r of Schedule 1.

[KrisD15]

First of all, an education credit can be valuable. If an education credit can be taken, it is taken by the Taxpayer that claims the student.

When a student is away at school, that is the same as living at home when determining if the student is a dependent. As long as the student does not supply more than half their own support, they are a dependent.

You don't have any 529 education savings distributions (Form 1099-Q) so we are only dealing with Scholarships. 

Yes, usually it is advantageous to take 4,000 education expenses and apply that towards a credit. 

Yes, you are allowed to "move" expenses and scholarships, but you can't just make things up. 

Scholarships can be ALOCATED to different expenses, such as tuition or room and board. 

Your 1098-T is reporting that tuition paid for 2024 was 11,116 and that the student received scholarships in the amount of 20,804. 

(Compare this to the student school statement to verify that these amounts are correct)

So with these numbers, the 1098-T is showing that the student received 9,688 more in scholarships than what he paid for tuition. 

If he also paid 409 for books (which would not be listed in Box 1 on the 1098T) the scholarship is 9,279 over. 

Scholarships used to pay tuition are not taxable.

Scholarships used to pay room and board ARE taxable.

You have the right to allocate the scholarship either way. (because the scholarship was not restricted to tuition only) 

If you ALLOCATE 4,000 of the tuition expenses to go towards a education credit, the student would need to claim an additional 4,000 in scholarships, so in your case 13,279 ( 9,279 + 4,000). 

With his wage income, he would need to file and claim 16,088 income (13,279 scholarships and 2,809 wages) 

The tax on his income of 16,088 would probable be less than the education credit you would get, so it is probably beneficial for you to claim the credit this way. 

(1)  How can I do the tax loophole correctly?

     The program will try to get you the credit. The student is your dependent so you should enter the 1098-T into your TurboTax program, and continue through the interview. Be sure to enter the additional expenses such as Books and Supplies. Was he required to have internet service to do any online classes or homework? If yes, a potion of that expense can be included. Room and Board are NOT included as education expenses for the credit. 

     At the end of the interview the program will give you an option to "Maximize my tax break". When you select this, the program will likely suggest the student claim income so that you can claim 4,000 expenses for the American Opportunity Tax Credit. (other restrictions may apply, such as your income)

     In your situation, the scholarship income the student will need to claim should be around 13,279.

(2)  What amounts need to be entered on his return for Box 1 and Box 5?

     Do not alter the 1098-T if the numbers are correct. Enter the form as it was reported to you. If the numbers are WRONG, you can adjust by using the link under Box 1 "What if this is not what I paid?" This might occur if a scholarship crossed a calendar year or the student received a refund from a class. 

(3)  What amounts need to be entered on our return for Box 1 and Box 5?

     Again, you are not altering the 1098-T, only allocating some of the amount in Box 5 to the student which the TurboTax program should do for you. If you were doing this on paper you would allocate part of Box 5 by 4,000 and have the student claim that EXTRA 4,000, but when using TurboTax, you don't do that, the program should. 

(4)  How do I then answer the TT interview questions correctly?

     The program will ask about any other expenses and you will enter the amount spent on books and supplies. There will also be questions asked in regards to the credit. The credit can only be claimed four times per student. The student is in the first four years of the degree (for 2024) as long as the student had not graduated with a Bachelor's degree in 2023 or before.  

(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098? Do I use this amount instead of the $4,000?

     The out of pocket payment will not be addressed. You only report what was paid and how much scholarship was received, the program does the math. 

(6)  Should I claim him as a dependent?

     YES, from what you say, I believe he is your dependent. You can verify this by entering his information into your "Personal Info" section and the program will tell you if he is your dependent. The time a student is away at school is considered as time living at home.

(7)  Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

     NO.  There are situations where an education credit can be obtained, but the Parent/Taxpayer that can claim the student can't use the credit (because of income limitations). If the student has a large tax liability it might be advantageous for the parent to not claim the dependent student and let the student claim the "NON-REFUNDABLE" portion to lower his tax liability, but this is not the case in your situation. 

     He will need to file a federal tax return as a dependent and claim his wages and the scholarship income on his return. 

     If he needs to file a state return, he would file as a resident for the state in which you live. He may also need to file as a non-resident for the state in which he earned the income. 

IRS Pub 970 has some great information and examples that you might find helpful

@Momof2boyz 

[Momof2boyz]

@Hal_Al, thank you so very much!  Regarding your last paragraph, the only thing that does not match your computation is his income. He worked two jobs, and his total income from wages is:  $19, 249.26.   The $2,809.45 amount I listed in the question was the amount he submitted out-of-pocket to his college to cover the rest of his expenses.   So the computation would be $13, 279 scholarships + $19, 249.26 wages = $32, 528.26 - $14, 600 standard deduction = $17,928.26 taxable income x 12% = $2,151.39 tax.   Does that change anything?

[Hal_Al]

Q.  So the computation would be $13, 279 scholarships + $19, 249.26 wages = $32, 528.26 - $14, 600 standard deduction = $17,928.26 taxable income x 12% = $2,151.39 tax.   Does that change anything?

A. No. It's still  only the $4000,  of the scholarship ,that gets taxed to give you the AOTC.  The rest was going to be taxed anyway.