1098T Scholarship Funds applied to previous year tuition

[brittany208]

I paid a full year of my graduate program's tuition and then was awarded a full scholarship that back-paid my tuition. The scholarship also includes a hefty award for living expenses for both years of the program. 

For 2024, my 1098-T has the following: 

Box 1      20,000

Box 5      81,000

Box 4       4,200

Box 1 refers to the tuition paid in 2024. However, part of the scholarship funds reported in Box 5 were used to pay my tuition from 2023, approximately $10,000. So, a total of $30,000 went directly toward tuition from the $80,000 reported in Box 5. I don't know what to make of the Box 4 adjustment reported in 2024; the financial aid office can't confirm how that adjustment was applied. I claimed the Lifetime Learning Credit in 2023. Do I need to file an amended return for 2023? And how can I allocate the funds reported in 2024 for the part that was applied to the previous year's tuition? Is it based on my own accounting for which part of the funds were applied to tuition, rather than how it is reported on the 1098-T form?

[AmyC]

You need to look at last year's return. This year's form 1098-T box 4 shows a reduction to last year's tuition paid. Plus it shows scholarship that can go on either year.

Depending on your numbers and what you claimed- you may not need to amend if the reduced tuition does not affect your tax liability. You may need to amend and then choose what to do with the scholarship based on the new numbers.

This year, if you use the 1098-T "as is", you would need to claim $71k went to room and board. The is leaves $10,000 for tuition and LLC.

At some point, the IRS may ask for proof. You will send bursar records, scholarships, etc. The IRS requires the tuition paid match up with the year claimed. The IRS allows wiggle room for scholarships, you can see why. Keep good records of what you have done for each year so you can show it all works out in the end.

Reference:

•  What You Need to Know about AOTC and LLC
•  How scholarships and tax credits interact
• another post of mine with scholarships and education credit here