Since this year my school reports differently my RA pay on my T-1098 form. Now it's included in Box 5 as a Scholarship/Grant, while the year before it wasn't included in any of the boxes - it was indeed listed as N/A (or allowance) on the form.
Here's the problem:
By including the RA pay in my scholarships, and not including it in my tuition expenses (because room and board doesn't qualify as an expense), my scholarships/grants end up being way more than my tuition expenses. After taxing the difference, it happens so that instead of being eligible to get education tax credit (American Opportunity Tax Credit, Lifetime Learning etc.), now I don't get credit anymore and on top of it, I also have to pay taxes on the exceeding amount.
How do I resolve this problem? Thanks in advance!
it is quite clear that any payments for services rendered for room & board are taxable income.
The issue may not be your school reported it wrong last year depending on if they report amounts paid or when amounts get applied in the bill. You are still responsible to report them in the correct period. So I'm not sure who erred (example you pay tuition in Dec. 2016 for spring 2017, the school may not put the scholarship in until 2017 but you should have reported it when you reported the expense, in 2016 so when you did the 2017 return you would have TT know it was 2016 amounts during the interview. You should have reported the amount last year as scholarship income which could be used for room & board (the interview will ask about the scholarship and what it can be used for and for what period of time it was applicable to). So the scholarship gets entered, you also enter the offset in room & board section of the interview, it gets used for the room & board you will enter during the interview and they negate each other out but it is rightfully taxable income as all scholarships/ stipends for room and board are considered taxable personal income. The amount of the stipend would not apply towards other tuition you enter (make sure you do enter the amount for room & board during the scholarship interview).
If you have other scholarships, they would apply towards the rest of your tuition & fees you entered (make sure to enter the amount you paid).
You may want to amend your prior year tax return to report the stipend last year correctly. The IRS has been reviewing education credits claimed. If you ever get rejected, that may eliminate your ability to claim them at all in the future. So you want to report correctly.
Education interview is often confusing. Basically you report the revenue when you report the expenses on your return, you do pay taxes on personal income for room & board. You must make sure to enter the expenses when you actually paid them.
The IRS is requiring that 1098-T do all go to cash basis due to the issues students are facing but, they have till 2019 tax year to implement the change.
You can request an amended 1098-T, so that you can try to get an education credit.
As a graduate student, you might be eligible for the Lifetime Learning Credit, which will give you a 20% credit on the amounts you pay for tuition, fees, books and required supplies, up to a maximum of $2,000. But this is only a credit against taxes that you would otherwise owe, and if you don't owe any tax, you won't get a credit. If you are a four-year student, you may qualify for AOC.
Although the IRS doesn't address your particular situation directly, it is quite clear that any payments for services rendered by a student at a college or university are taxable. The IRS goes on to say that students are exempt from FICA tax.
Other colleges and universities specifically address your situation. UW-Madison, for instance, says RA wages are fully taxable, and taxes will be withheld.
Columbia University describes stipends as payments for room and board that may be taxable to the student but are not reported to the IRS. Payments for services rendered are taxable wages, and taxes will be withheld.
In reporting your room and board in box 5, the university may be doing you a favor.
Because you haven't revealed the rest of your income, it's impossible to tell from this perspective whether it is better for you to leave well enough alone, or to insist that the school correct the 1098-T.
Based upon what the IRS says, your stipend should be subject to income tax but not FICA. If you have no other income, there would be no advantage to you to change the 1098-T, as you would not owe any tax and therefore would not be eligible for an education credit. If you earned another $10,000 during the summer, without changing the 1098-T, you would still owe no tax, because you haven't exceeded the filing requirement. Only if your taxable earnings (in addition to this stipend) exceed $10,400 would changing the 1098-T make a difference to you.
If you don't have more than $10.400 in other taxable earnings, I would leave well enough alone.