How to make college scholarship taxable income in Turbotax?

[mark1110]

My child is in college and receives a scholarship. The scholarship is for tuition (not room and board). It is my understanding that one could declare part (or all) of a scholarship as taxable income. One may want to do this to qualify for an education tax credit (ie., AOTC). Since my child has very little income, the extra income by declaring the scholarship as income may not make a difference, meaning she didn't owe any fed taxes before or after the change (state taxes are another issue). My question is how to declare a scholarship as taxable income in Turbotax? The only way I saw I can do this is if I say some of the scholarship was used for room and board. That does, I believe, give me the desired result. Is that the best way to do it? Is there another way?

[AmyC · Accepted solution]

That is perfect to declare it used for room and board unless it was given with specific requirements that it only be used for tuition, which is rare. You get the AOTC, she adds the 1098-T scholarship income. She may be subject to the kiddie tax but that is still fine compared to your AOTC credit.

See What is the Kiddie Tax?

Great job! This is complicated and you have it figured out!

[mark1110]

Thanks for the reply. My daughter got two scholarships. One was from NY State (Excelsior) that I know has to be for tuition only. The other one was from my workplace and I believe it has a little bit more latitude only because I can't find any strict statements saying it is only for tuition. The amount I want to make income can be fully contained in the workplace scholarship amount, so I think I'm good. 

[Hal_Al]

Q. Say  some of the scholarship was used for room and board. Is that the best way to do it?

A. Yes. It's the way the TT interview is designed to handle it.

Q.  Is there another way?

A. There's a simpler way, but is essentially a workaround.  Enter $0 in box 1 at the 1098-T screen. Enter the amount you want to be taxable in box 5 (usually $4000).  What you enter is not sent to the IRS. But the $4000 taxable scholarship goes on line 8r of Schedule 1, the desired result. 

Kiddie tax will probably not be due (but form 8615 may be required) since your child has very little other income. Technically, he does not have to file a tax return, if he has less than $13,850*.  But you may want to file anyway to document the shifting of the $4000 tuition. 

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $13,850 filing requirement and the dependent standard deduction calculation (earned income + $400).  It is not earned income for the kiddie tax and other purposes (e.g. EIC).  For grad students and post grad fellows, scholarship, stipend and fellowship income is earned income ("compensation") for IRA contributions.

*The filing requirement is only $1250 for unearned income (e.g interest and dividends). 

[Jeff48]

Turbox tax doesn't allow me to enter an amount as a taxable scholarship.   It did in 2022 but the 2023 version automatically defaults to $0 and I can't override it.

[Hal_Al]

TurboTax has eliminated the ability to enter taxable scholarship in the uncommon income section. 

How to Enter taxable scholarship.

 Enter at Educational Expenses and Scholarships, under Deductions and credits (not the income section).

After answering no to having a 1098-T, answer yes to qualifying for an exception (that gets you to the entry screens). You will have to go thru the whole education interview to get to the scholarship screen. At the scholarship screen, enter the amount of the grant. When asked if any was used for room and board, answer yes. Then enter the amount you want to be taxable (usually all of it), in the pop up box. R&B are not "qualified educational  expenses".  So, this is how you tell TT that it is taxable. Note the wording at that screen “or other expenses”. You didn’t have to literally use the scholarship for R&B.  This will put it on line 8r of Schedule 1 (this line is new for 2022-3).

If you do have a 1098-T, one of the follow-up questions will be do you have any scholarships not shown on the 1098-T. Enter the additional scholarship/stipend there.