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:
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.
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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.
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