Do I need to file Form 1098-T?

[hchan32]

Last year, I got a 1098-T and had no income. When my parents brought my 1098-T to their tax preparer, they didn't file anything for federal or NY. My Box 5 Scholarships and Grants were more than my Box 1 Qualified Expenses by about $4k.

This year, I'm required to file a federal return because I incorrectly contributed to my Roth when I had no earned income and will need to pay the 10% penalty on my earnings. Am I required to also file my 1098-T? When I include my 1098-T information on TurboTax, my NY tax shoots up to $200 because my Box 1 Qualified Expenses are more than my Box 1 Qualified Expenses by approximately $6k and therefore my AGI is $6k.

Do I need to include my Form 1098-T? I've read that since my scholarships exceed my tuition expenses, then the $6k excess scholarships is taxable. And because I'm a single dependent, I will have to file a NY return because my $6k AGI is over the $3,100 threshold. But last year, my parent's tax preparer didn't file anything for NY even though I should have been considered to have a $4k AGI for my taxable scholarship.

Any help is greatly appreciated! 

[MarilynG1]

Depends.  If your parents claim you as a Dependent on their return (or are allowed to claim you), they enter your 1098-T in their return.

If not, you would enter it on your return, and yes, you would have Taxable Income if Scholarships/Grants exceeds Tuition Paid (don't forget to enter all other expenses, such as books and fees). 

Click this link for detailed info on Who Enters the 1098-T. 

[hchan32]

@MarilynG1 

My parents will claim me as a dependent. Would this mean that I should delete the 1098-T information on my return and have my parents include it in their return instead?

The thing is, I've looked through my parents returns and it doesn't look like their tax preparer included any of my excess scholarships in their income.

[RayW7]

That is correct, if your parents claim you do not include the 1098-T information on your personal return.

[hchan32]

@RayW7 

Ok, thank you. I've seen threads stating that if scholarships > expenses, the excess scholarship would be taxable and the child would need to report it as income.

What is to become of this taxable portion if not included by the dependent?

[RayW7]

Let me clarify,

If there are no excess funds and the student is a dependent then the parent will claim the Education Expense.

However, if there are excess funds and the amount of scholarships/grants exceeds the amount of qualified education expenses, the parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

 If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.

If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6200, then the student should file a tax return so as to get those withheld taxes refunded.

[hchan32]

@RayW7 

Thank you for your this clarification. I feel like I fall in a gray zone in your explanation, so to clarify:

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@RayW7 wrote:

If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6200, then the student doesn’t even need to file a tax return, and nothing has to be reported.

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My scholarships/grants exceed my qualified expenses. I have no W-2 income. Together, it does NOT exceed my $6200. Theoretically, I would not need to file and nothing would be reported.

However, I am required to file a return because I have to pay the 10% penalty on my excess Roth earnings. Do I report the 1098-T showing excess scholarship?

[KrisD15]

That is a gray area. 

If you feel you need to file because you contributed to a Roth with no income, you may withdraw that amount as well as the interest to avoid the penalty. Depending on the amount, you may need to report the interest.

If you file a return, you are required to report all income. 

For you, the 1098-T generates income, so yes, report it. 

If you don't include it, there would be NO impact to your tax liability. 

If you don't include it and you were to be audited, you would not owe any tax for not including it. 

To be compliant, enter the 1098-T into your TurboTax program. It should not generate additional tax, but you may owe the penalty on the Roth Contribution if you don't withdraw it in time. 

According to the IRS:

“You won’t have to pay the 6% tax if you withdraw an excess contribution made during a tax year and you also withdraw any interest or other income earned on the excess contribution. You must complete your withdrawal by the date your tax return for that year is due, including extensions.”

IRS Pub 590-A