Education credit when Box 5 is greater than Box 1 (1098-T)

Are you the parent or the student? If you are paying tax on the scholarship and it is considered taxable income, then you can claim an education credit on the amount that is included in taxable income. 

This is from the student point of view. Thanks.

It depends. Whoever claims the student and exemption, claims the education credit. If your parents are claiming you, then they get the education credit and you pay the tax. Usually parents have a higher tax liability and the credit is much more valuable to them. See What You Need to Know about AOTC and LLC.

If your parents are not claiming you:

Here is what you need to do:

• If you are ineligible for both credits - don't change the numbers or allocation, reduce your tax liability by claiming the scholarships against the tuition.
• If you are eligible for the LLC- you want $10,000 of tuition expenses for the full amount.  The LLC will be 20% of your tuition paid. Use the scholarship for room and board above the $10k tuition limit. For example: 
  • Box 1 $25k and box 5 is $40k. 
  • You need $10k for tuition, this leaves $15k available to be covered by scholarships. 
  • $40k scholarships used $15k for tuition, then remainder, $25k went to room and board.
• If you are eligible for the AOTC, you want to shift numbers around to find a sweet spot. The AOTC reduces tax liability and then has a refundable portion. The magic number is $4,000 for tuition. 
  • Same box 1 and box 5 as above
  • You need $4k for tuition, this leaves $21k to be covered by scholarships.
  • $40k scholarships total - $21k to tuition leaves $19k to room and board.

Check form 8863 for education credits. Adjust numbers for room and board to maximize your refund. This is allowed. The IRS has a great brochure that explains how scholarships and tax credits interact.

Q.  However, can I (the student) still claim any education credits in this case?

A. Maybe, but it's more likely that your parents can claim it. 

See: 

https://ttlc.intuit.com/community/college-education/discussion/i-need-help-with-1098t-section-college-expenses/00/3451036

The four main points on the 1098-T