1098t help

[Janet and Anthony]

My son, whom I claim as a dependent, graduated in May 24 but also attended summer school after graduation for prerequisites needed in order to apply for med school. His 1098t box 1 only reflects the cost of summer tuition since Spring 24 was billed in Fall 23. Box 1 is $7600 and box 5 is $34k. After receiving his account print off from the school I see the school credited his account the amount he was to receive in grants and scholarships and then made a manual adjustment of the spring tuition once the grants/scholarships were received in January 24. He was refunded 6k from the school of the difference. Is he required to report the difference of box 1 and 5, almost $26k! , or just the amount of $6k that was refunded as overage to him as taxable income? 

[AmyC]

It depends. If the scholarship was not included in 2023, then it must be included in 2024. Usually, we find the scholarships and tuition get confused through the 4 years and graduates end up paying the difference. You may have added the scholarships in 2023 to offset the income. The IRS has a great brochure that explains how scholarships and tax credits interact.

 You may need to review all the college years to figure out which scholarships were claimed against which tuition on what years. Tuition paid must stay with the year while scholarships will sometimes end up in the wrong year. At the end, it has to all be accounted for. You can only claim the education credit 4 times for AOTC and then it goes to LLC.  

Reference:  What You Need to Know about AOTC and LLC

[Janet and Anthony]

We have never claim the AOTC due to all qualified expenses being covered by the scholarships. He received 1098t in 2023 where box 1 was $59,992 and box 5 was $71,669. Box 7 was checked. He had no other income and I was told he did not need to file 2023 taxes because it was under the standard deduction. Note to add some of the scholarship was used for Maymester that he attended overseas earning some credits through his school which furthermore complicated things. 

2024 1098t box 1 is $7600, box 5 is $34,197 and earned $6k in w-2 wages. Although box 1 shows the amount for the summer tuition, it was not paid by scholarships in box 5. He still

has an open balance owed to the school for over $5k and appears more than likely a hefty tax bill due to how the school reports and bills tuition and scholarships received. I agree he should probably pay taxes on the amount refunded ($6k), but my mind is not grasping how over $27k is considered taxable income for 2024. 

Can you attempt to “dumb” it down for me? 

[Vanessa A]

What was the other $27k used for? 

Basically, any part of the scholarship NOT used to cover qualified education expenses is considered taxable income.   So if a large part of his scholarships were used for room and board or refunded to him this would NOT be qualified educational expenses and would be taxable income.   

Only the amount used for tuition, books, and required material or equipment would be NOT taxable. 

[Janet and Anthony]

His account statement reads as follows: 

12/06/23- tuition adjustment $27,446

01/02/24- grants posted $26,901

01/03/24- student refund $6091.84

01/09/24- Federal sub loan $2721.00

01/14/24- tuition adjustment $8926.00

01/14/24- tuition adjustment (-$8926.00)

05/20/24- grant $2000.00

05/30/24- tuition adjustment $27,446

06/02/24- tuition adjustment (-$27,446)

08/14/23- grant ($1411.84) * yes, that is date 

05/14/24- tuition adjustment $7600

With a final balance owed of $5073.00 due to school. 

[KrisD15]

Hard to say looking at numbers supplied through an Answer Exchange, but LOOKS LIKE 

27,446 and 7,600 were charges 

and

26901, 2,000, and 6,092 were scholarships Grants and refunds. 

That would result in about 35K for Box 5 and 7,600 for Box 1 if the 27,446 had been reported on the 2023 tax year 1098-T.

You can allocate the 26,901 Grant to tax year 2023. 

Use the screen that asks "Did your Aid Include Amounts Not Awarded for 2024 Expenses? "

This will move 26,901 off the 2024 return, but again, in your situation, that means the student would need to claim 26,901 additional income for tax year 2023 since there were not enough expenses in 2023 to offset that extra income. 

If that is the case, since the student filed a 2023 tax year return, the student would report the additional income on the 2024 return. (If he hasn't filed, (he might not have needed to) he could file a 2023 tax return and claim the additional scholarship income) 

Since the Standard Deduction in 2023 was 13,850 and this year 14,600 you might as well claim it for 2024. 

If the 2023 Form 1098-T reported 59,992 in Box 1 and 71669 in Box 5, he had 11,677 scholarship income, adding the 26,901 to tax year 2023 would put him over the standard deduction for 2023 by 24,728. Claiming in 2024 puts him over by 20,393 for 2024. 

(11,677 + 26,901 - 13,850 = 24,728)

(26,9901 + 2,000 + 6,092 - 14,600 = 20,939)

See IRS Pub 970 page 15

[Janet and Anthony]

I’m just not grasping this and still feel something is wrong. His junior year he decided to take the max loan out to get some money as he was unable to work while interning, going to school full time while a student athlete. He also did a summer semester in South Africa. He only began receiving refunds then, But no where close in excess of what is being reported on the 1098’s. His school changed billing systems and it seems something is way off. I pulled all 1098’s he received over years. 

2020 1098T- box 1 31,271.00, box 5 30,573.00

2021 1098T- box 1 64,026.00, box 5 61,220.00

2022 1098T- box 1 55,699.00, box 5 61,995.00

2023 1098T- box 1 59,992.00, box 5 71,669.00

2024 1098T- box 1 7600.00, box 5 34,197.00

[KrisD15]

If you think the 1098-T was not reported correctly, make an appointment with the school billing and/or financial aid office. 

They should be able to explain everything and may even have advice on how to report the expenses. That's their job. 

It could make a big difference with your tax liability. 

[Janet and Anthony]

Thank you for your response. I think at this point, he needs to file for an extension to allow us some time to get with the school. They haven’t been very helpful via email. 

[KrisD15]

An extension will give you more time to sort things out, but remember that if there is a tax liability, that needs to be paid by April 15th or penalty and interest may be applied. 

You can always send a payment in with the extension and later get any over-=payment back as a refund.  

HERE is the link to file an extension