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mojo03
Returning Member

taxable scholarship funds? 1098T

We are claiming our daughter as a dependent on our tax returns. My daughter attended a university in NC fulltime in 2023 and received a 1098T.  This 1098 T in Box 1 has $8364 and Box 5 $2500. She also attended a summer program at a university in Michigan where all of the tuition was covered by scholarship and there was a stipend of $1200.  The Michigan 1098T  box 1 shows $2700 and Box 5 shows $3900.  She has a 529 plan that was used to cover her non scholarship college expenses.

 I have entered everything into turbo tax and do not see the $1200 " stipend" amount coming up as income on her return. I am wondering if this is because if you add the 1098T form numbers together that the total scholarship amount ($3700) is less than the total qualified expenses (approx $11,000)?  Should she claim the $1200 stipend as income to possibly avoid taxes on part of the 529 withdrawal? The 529 funds were withdrawn in the parents name.  If we do this, how to we get the $1200 to show up as taxable income on our daughters taxes and then what do we need to do on our taxes to reflex the situation

One other question, does the 1098T from Michigan mean that my daughter would need to file state taxes in Michigan? She will file state taxes in NC where she is a resident. 

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1 Reply
AmyC
Expert Alumni

taxable scholarship funds? 1098T

1. The $1200 stipend is probably income. The federal government looks at the big picture. If all of the 529 was used for qualified expenses, it doesn't even have to be entered on the return. For the taxable income, any scholarships not used on tuition are taxable. This allows room to maneuver for the parents to claim education credits. The IRS has a great brochure that explains how scholarships and tax credits interact.

Once you have decided what portion of the scholarship income you want to be taxable, based on your taxes, then you can enter the taxable portion in her return. 

2. Yes, better to tax the stipend than the 529. I would eliminate all 529 if possible.

3. The income on your daughter's return will be decided after your return is done. Please see another post of mine here.

4. There is probably MI income after all the configuring above but it is below the personal exemption of $5,400 so no return is required. MI-1040 Book with forms (64 pages)

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