TT says my daughter needs to claim some of her scholarship as income, but the entire amount is less than her tuition and that is all it is used to pay for. Is TT wrong?

[heidimay]

My 21 y/o daughter, who I claim as a dependent, received about $6200 in scholarships; her tuition was about $14000. She lives off-campus and the scholarship is sent directly to the school, so I know it could only have been used to pay for tuition and all the other required fees the school charges.  Almost $2000 of this scholarship was sent in December 2023 but earmarked for the spring (2024) tuition, and I marked it as such in TT.  TT says she needs to claim the remaining $4000 as income.  If I say all of the money was for 2023 tuition, it says she needs to claim the entire scholarship amount as income.  How can this be possible?  Like I said, every penny was used towards tuition, not room or board. I was asked to repost this question with the following info:

• Are you the student or parent. Parent
• Is the  student  the parent's dependent. Yes, she is my dependent
• Box 1 of the 1098-T- $14842.12
• box 5 of the 1098-T- $6323.00
• Any other scholarships not shown in box 5 -  No monies in any other boxes
• Does box 5 include any of the 529/ESA plan payments (it should not)- No
• Is any of the Scholarship restricted; i.e. it must be used for tuition- Not that I am aware, it was only used for tuition in any case.
• Box 1 of the 1099-Q- $7716.99
• Box 2 of the 1099-Q- $2627.55
• Who’s name and SS# are on the 1099-Q, parent or student (who’s the “recipient”)? -Me, the parent
• Room/rent & board/food paid. If student lives off campus, what is school's R&B on campus charge (you can claim the lesser of the two) -$6090 off campus. I use my personal funds to pay her rent in the summer. When she lived in the dorms, room and board was about $14500 per year.
• Other qualified expenses not included in box 1 of the 1098-T, e.g. books & computers - $195.24 ebooks
• How much taxable income does the student have, from what sources- On campus PT job and interest added up to $6239.32 in 2023
• How much of the AOTC are you eligible for?- I've claimed for 2 prior years at the full amount, didn't qualify at all last year, this year we qualify for $1800 of the possible $2500.
• Is the student an undergrad or grad student? - Undergrad
• Is the student a degree candidate attending school half time or more? - She's a full time student working towards her first bachelor's degree.

What I don't get is how the scholarship can be taxable, even if the full amount of the scholarship was being used towards 2023 expenses.  The scholarship $6323 plus the full $7717 dispersment of the 529 add up to less than the full amount of the tuition.

[AmyC]

The 1099-Q $7716.99 goes to the room and board, tuck it away and do NOT enter it into the program.

This leaves the 1098-T $14,842.12 is grater than box 5 and there is no taxable scholarship income. While the education credit is available due to expenses, if you are unable to claim the credit, don't enter the 1098-T for either of you.

Both the 1099-Q and 1098 are informational forms which means they should only be filed when used.

If the entire 1099-Q went to qualified expenses, room and board, tuition, etc then you do not need to enter the form. Tuition paid for the first 3 months of the next year also qualify, see page 12, What Expenses Qualify, and page 52 for qualified distributions at IRS Publication 970, Tax Benefits for Education.