1098T- Box 5 exceeds box 1

Forum|Forum|1 year ago
January 30, 2025
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Hi! I cannot figure out what to do. I am a full-time college student and I received my 1098T form from my university yesterday. In Box 5 (My total number of scholarships received), the number is around $24,000. In box 1 (Qualified tuition and expenses), the total number is around $10,000. When I input this information when doing my taxes, it considers that $14,000 difference as income. Taxable income. The problem is I did not receive any of that $14,000 as income. In fact, the full $24,000 was applied to my account and it still didn't cover all of my charges(This includes meal plan and room and board). After the full $24,000 was applied to my account, I paid the remaining balance out of pocket. Turbo tax gives me the option to change box 1, and I thought I was supposed to do that. But I am also seeing that I am not supposed to(according to other threads on here). This is confusing to me as they would change my income for the year from $11,000(How much I made from working and is recorded on my W2's) to $25,000 due to the $14,000 difference from my 1098 T. But like I said above I did not receive this money. I did not get any type of refund and had to pay the remaining balance myself. Does anyone know what to do here?

KrisD15

Level 15

If I understand correctly, only 10,000 went to the school and the remaining 14,000 went to other things, like Room and Board.

Funds used to pay for Tuition, Fees, Books and Supplies is tax-free.

Funds used to pay Room and Board are taxable to you.

It is like the 10,000 of the scholarship went to the school to pay tuition.

Then 14,000 WOULD HAVE GONE TO YOU, thus taxable, but rather than go through your hands and back to Campus, the school paid for your room directly.

IRS Pub 970

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Megumi47Author

Level 2

Thanks for responding!

Quick follow up. So the fact I did not receive a refund doesn't matter? With this "Added income" I will now owe money since $14,000 is a lot( And I also worked to pay the rest of my tuition) so I wanted to be sure.

Second follow up so I can understand: I am essentially paying taxes on the scholarships given by my university for room, meal, and other non-qualified expenses even though I am not receiving any of this money personally and it doesn't cover everything.

Hal_Al

Level 15

@KrisD15,

Thank you so very much for your reply. Here is my specific tax situation and questions. I have a 20-year-old son in college who earned several scholarships. He also works two jobs. I am specifically confused about the IRS Tax Loophole regarding the scholarships and the AOC credit and all of the examples using the $4,000 qualifiable tuition expense amount when Form-1098 Box 5 exceeds Box 1. Even with the scholarships, my son still paid out-of-pocket for the remainder of his total expenses using money he earned from a job ($2,809.45). This amount is not listed on the Form-1098. I have manipulated the numbers multiple times using the Tax Loophole examples...putting $4,000 in box 1 and leaving box 5 blank on my return while on his return, leaving box 1 blank and putting the difference between block 5 and block 1 minus books ($409.45) in block 5 ($9,278.11)-- compared to entering the Form-1098 as it states. The difference in refund between the two ways on our return is $3,000, so I really need to ensure that I am doing it all correctly. It does not make sense to me to receive thousands of dollars back from the AOC when we did not pay anything for the actual tuition. That's what I can't understand. Am I supposed to use the $2,809.45 in my block 1 instead of the $4,000? I am aware that only tuition is a qualified expense and not taxable. I am aware that the amount of scholarships applied to room and board is taxable and that he needs to claim these as income. I am aware that he can not claim educational credits if he is claimed as a dependent on our taxes. I know the credits work off claiming expenses reported in Box 1 on the 1098-T. There are no restrictions on his scholarships. He can apply them to tuition or room and board. My son pays all of his expenses for housing and meals with his scholarships. He pays for his own gas and personal expenses. He only comes home for holidays.

Form 1098-T Box 1: $11, 116.44. Box 5: $20,804.00.

(1) How can I do the tax loophole correctly?

(2) What amounts need to be entered on his return for Box 1 and Box 5?

(3) What amounts need to be entered on our return for Box 1 and Box 5?

(4) How do I then answer the TT interview questions correctly?

(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098? Do I use this amount instead of the $4,000?

(6) Should I claim him as a dependent?

(7) Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

Thank you so much!

Q(1) How can I do the tax loophole correctly?

A(1) Use the short cuts and don't get bogged down in the interview. See Q2 & Q3.

Q(2) What amounts need to be entered on his return for Box 1 and Box 5?

A(2) 0 in box 1 and $13,279 in box 5 (20804 -11116 - 409 + 4000 = 13,279)

Q(3) What amounts need to be entered on our return for Box 1 and Box 5?

A94) 4000 in box 1; 0 in box 5

Q(4) How do I then answer the TT interview questions correctly?

A(4) Enter no other numbers. Yes, he's working on a degree. Full time student. No to books or loan payments. No to scholarships. No to 4years of college. Last three questions answer based on your facts.

Q(5) How do I address the $2,809.45 that he paid in cash for expenses after scholarships covered the rest that is not listed on the Form-1098?

A(5) It is not entered any where. It's included in the $4000 that is no longer covered by tax free scholarship. You never enter payments, per se. You enter expenses only and then allocated them to the tax attributes (scholarship, tuition credit, 529 distribution). Notice that there's no where to enter student loan payments either.

Q (5b) Do I use this amount ($2809) instead of the $4,000?

A(5b) No.

Q(6) Should I claim him as a dependent?

A(6) Yes. Everything you described says he's still your dependent. Equally important nothing you described qualifies him for any AOTC, if he isn't your dependent.

Q(7) Should he file stating he can be claimed as a dependent but is not being claimed as a dependent?

A(7) No. He states he can be claimed as a dependent and will be claimed as a dependent

With his wage income, he will exceed the filing requirement and report $16,088 of income (13,279 scholarships + 2,809 wages). $16,088 -14,600 standard deduction = $1488 taxable income x 12% =$179 tax, allowing you to claim the $2500 AOTC. The "kiddie tax" will apply. I assume the parents marginal tax rate is 12%.

Scholarships are a hybrid between earned and unearned income. It is earned income for purposes of the $14,600 filing requirement (2024) and the dependent standard deduction calculation (earned income + $450). 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.

Taxable scholarship goes on line 8r of Schedule 1.