Who enters the 1098-T on their return my son or me (parent)?

[jonblauch]

This article is very helpful.  Is anyone on this thread aware of an update to this based on 2018 tax law changes?

[ahappybear]

@Carl 

just to clarify - we claim our 19 year old daughter on our taxes but I just want to make sure I'm doing this right. She received a 1098-T from her university - in box 5, it shows she received $70,895 in scholarships and grants, and only $55,403 of that was in box 1. So we will end up claiming the difference of $15K or whatever on her OWN taxes, right? In addition to the $2,000 she made in part time work over the year? 

Also - we paid around $1,000 in addition to her university in 2019 for the tiny bit that her scholarships didn't cover. Does that go anywhere on taxes? And we don't claim any of that excess scholarships OR credits on our taxes correct? 

[ThomasM125]

You should enter the form 1098-T information on her tax return. You will have an option to enter the additional expenses when you enter the form. She will report the income on her return along with her wage income.

You are correct, you do not report anything on your tax return. If the education expenses had been more than the scholarship income, then you could report the 1098-T information on your tax return and you may have been eligible for an education credit.

[Carl]

So we will end up claiming the difference of $15K or whatever on her OWN taxes, right?

You misworded that. "we" should be "she". But yes, the student will report "all" of the education stuff on their own tax return. The student will still select the option for "I can be claimed on someone else's return" and the parent will still claim the student as a dependent on the parent's return. 

Now for the student when they report this on their return, the taxes they will pay only on the excess scholarships/grants will be at the "higher" parent's tax rate. So don't be surprised if the student asks you for your personal income information. They are required by law to provide it, for the purpose of determining the tax rate the excess scholarships will be taxed at. Since the excess scholarship money plus her earned income exceed $12,350 she is required to file a tax return.

Keep in mind that the 1098-T is not always inclusive. If there are scholarships that were awarded in 2019 that are not include on the 1098-T, then that will increase the student's taxable income. Likewise, if there are qualified education expenses (such as books, which is common) not included in box 1, that will decrease the amount of taxable scholarship money. If those expenses not included in box 1 are actually enough to exceed the total of all scholarships received, then guess what? The parent reports the education stuff on the parent's return!

Another thing too, is that if the student was not paid the excess scholarship directly by the school, that would mean the school is holding the excess to "apply" it to 2020 qualified expenses. If that's the case, then the student needs to indicate that on their tax return so that the excess they did not physically receive will not be taxed on their 2019 tax return.  Someone also needs to keep track of the "exact" amount held over by the school, because someone (you or the student) will have to report that amount on the 2020 return when that gets done next year.

Finally, do understand that neither you or the student will get "any" education credits for 2019 if in fact, all qualified education expenses were 100% covered by scholarships/grants.

[Carl]

we paid around $1,000 in addition to her university in 2019 for the tiny bit that her scholarships didn't cover.

Based on the fact that her scholarship income for 2019 exceeded the qualified education expenses it was used to pay for, that "tiny bit" was apparently not a qualified education expense. But I suspec that $1K was for books, and that amount will reduce the amount of taxable scholarship income your daughter will pay taxes on. Remember, if your daughter is claiming the education stuff, then she claims "EVERYTHING" related to the education. You still claim her as a dependent, but you don't report anything concerning her education costs at all.

[ahappybear]

Thank you for clearing that up - and yes by "we" I meant  her taxes but I guess I meant "we" are helping her file her taxes. She may be a smart kid with lots of scholarships but I still think she'll pull the little girl card when it comes to filing taxes and ask her mommy for help. 😉 

[ahappybear]

But actually that brings me to a different question - the $1000 was not books, it was the amount paid to the school. The books she paid for separately. So is it safe to assume that what we paid was for qualified expenses? How would we know what the extra we paid for was if we are billed for the amount that scholarships didn't cover? 

[Carl]

Doesn't matter that you paid the school any money, since scholarships exceed qualified education expenses. This is how the IRS sees it:

First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income on the student's return. It automatically gets transferred to and included in the total on line 7 of the student's 1040.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is included in the total on line 7..

Finally, if there are any qualified education expenses left to pay (which does not include room and board) out of pocket money is applied to qualified education expenses. Only the out-of-pocket monies applied to the qualified education expenses of tuition, books and lab fees is eligible for any of the education credits.

So in your case, there are no out of pocket expenses that were applied to any qualified education expenses. Not a penny.

[RobChee20]

Unique situation trying to find an answer.  My son was enrolled in college for academic year 2018-2019.  We the parents claimed him as a dependent in 2018 and filed the 1098T (Box 1- $17,903 and Box 5- $13,250) and received the educational credits for that year. However, I did not support him in 2019 as he withdrew from his classes early spring semester of 2019, had a full time job, was no longer living with me and had a child in June 2019.  He is filing his own taxes for the first time for the year 2019 and we're wondering if he should file the 1098T information or should we the parents, as we made payments toward his tuition with a Parent Plus Loan. The amount of payments received in Box 1 for the 2019 1098T form exceeds box 2 by 8K.  Should this be on his returns or ours?  Thanking you in advance for your assistance in this matter. 

[Carl]

However, I did not support him in 2019

There is no requirement for the parent to provide the student any support. Not one penny. The support requirement is on the student, and "only" the student.

If the student did not provide more than 50% of their own support during the entire tax year, then the parents qualify to claim the student as a dependent on the parent's tax return. Scholarships, grants, 529 distributions, gifts from Aunt Mary, etc., *do* *not* *count* for the student providing their own support.

as he withdrew from his classes early spring semester of 2019, had a full time job, was no longer living with me

If the primary reason the student was not living physically under your roof for the entire tax year was because the student was attending school, then that time spent away at at school is considered to be time spent living under your roof. It doesn't seem to me that my statement applies to your situation.

and had a child in June 2019

Did your son get married in 2019? I am assuming he did not. But he did become a father in 2019.  But you say he dropped out of college in "early spring" which I would guess would be in March of 2019? On top of that, he got a job and started working I would expect shortly after leaving college. So it "sounds" to me like your son did provide more than half of his own support for 2019. (That may not be true if your son lived with you after dropping out of college.) If so, then he just flat out does not qualify as your dependent and you can't claim any of the eudcation stuff. Your son will claim all the education stuff for 2019 on his own return.

Now if your son claims the child as his dependent (the mother actually gets first dibs on that) then the fact he's claiming a dependent on his tax return automatically by itself, negates your son from being claimed as a dependent on anyone else's tax return.

[vmi9d3rmwc9d6]

Thanks for all the details.  I fall under this circumstance:

"If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses."

When going through TurboTax it ask: "Did you pay for room and board with a scholarship or grant"  I answer yes, it then request how much of the scholarships was used for this expense?  

A couple questions about this:

1. what difference does it make since it is all unearned income?

2. When I put the full amount of scholarship money the tax was much greater then when I only put in the room and board amount, why?  The amount of federal tax was double.  Edit (30 mins later): I looked at the 1040 with both scenarios, and the amount I enter as room and board is the only amount marked with SCH next too it.  I am not sure of the significance of this.

3. How do I determine the amount of room and board if the student lived off campus and a room and board amount is not in their bill from the bursar's office?

Thank you for your assistance and consideration.

[Carl]

1. what difference does it make since it is all unearned income?

A big difference. Not based on the fact the income is unearned. But based on the fact it's paid to s student that qualifies to be claimed as a dependent on the parent's tax return. Weather the parent actually claims them or not is irrelevant. The key word is *qualifies* to be claimed.

Scholarships and grants can only be used tax free for the qualified education expenses of Tuition, books and lab fees. That's it. So if you used any part of a scholarship or grant to pay for anything other than those three qualified education expenses, it's taxable income to the student. 

Do not confuse this with 529 distributions reported on a 1099-Q. 1099-Q funds can be used tax free to pay for the unqualified but allowed expense of room and board, provided that room and board was "in direct support" of the education. (If the student did not take summer classes, then the room and board for those months, generally June through August, are not allowed.)

2. When I put the full amount of scholarship money the tax was much greater then when I only put in the room and board amount, why?

All third party income (scholarships, grants, 529 funds) is taxable income *INITIALLY*. It's taxability is offset by the *qualified* expenses it is used to pay for.

 I looked at the 1040 with both scenarios, and the amount I enter as room and board is the only amount marked with SCH next too it. I am not sure of the significance of this.

It is indicating that the reason the amount in box 7 exceeds the total of all W-2 income, is because the difference is excess scholarship/grant money (not 529 money) that was used to pay for room and board. Remember, scholarships and grants are tax free "ONLY" if used for the three qualified education expenses I mentioned above. It can not be used tax free to pay for anything else, including room & board. So that part of the scholarship/grant you told the program was used to pay for room and board, is taxable income to the student.

3. How do I determine the amount of room and board if the student lived off campus and a room and board amount is not in their bill from the bursar's office?

Even when the student lives on campus, room and board is "NEVER" included in box 1 of the 1098-T. The 1098-T is for the qualified expenses of tuition, books, and lab fees. That's it, with no exceptions.

Box 5 is for all scholarships and grants received. It does not include 529 distributions, since those distributions are typically paid directly to the named beneficiary recipient of the fund at the time the funds are disbursed from the 529.

Since on-campus living expenses (dorm rent & the separate food plan) are paid to separate entities (Not through the BUSAR) you should have bank statements or credit card statements showing those payments for what they are (rent and food).

If in your case you do have a 529 distribution and that distribution was paid directly to the school, then the school more than likely included that distribution in box 5, which is not wrong for them, but it's an issue for you. So if this is your issue and you have a 1099-Q, I need to know that.

[vmi9d3]

@Carl: I couldn’t figure out how to log back in as vmi9d3rmwc9d6 so I am now vmi9d3. 

Thank you so much for your prompt reply.  I feel I didn’t clearly ask my questions, thank you for your patience as I try again and respond to your info:

I didn’t use any 529 distributions for this student. He is on a ROTC scholarship which covers the tuition and fees and then the school gives him a scholarship.  If his total bill (tuition, qualified fees, room and board, other fees which are not qualified expenses) is less then the amount of scholarships he receives the school will give him a check for the difference. 

Here are more details regarding the 1098-T, box 5 is $17,050 greater then box 1.  There was also about $5500 in W2 income.

As I work through TT and I get the question "Did you pay for room and board with a scholarship or grant" and I answer yes it then request how much of the scholarship was used for this expense?  For one semester of the calendar year 2019 his room and board were listed on the Bursar bill, so I can easily calculate it, for the 2nd semester he lived off campus in a rental apartment.  There are 2 items I am trying to understand:

1. When I answer the question about how much of the scholarship was used for room and board, I initially answered all of it, $17050.  But I realized not all of it was and only $12000 of the $17050 was used.  Putting the $12000 for this question decreases the federal tax vs when I enter the whole $17050.  In both scenarios since scholarship money is being used for a non-qualified expenses (room and board and other things which are not qualified expenses) what difference does it make how much of the $17050 was used for room and board?
2. While living off campus, I know the amount of rent (room) he paid, but I have no idea how much food (board) he ate and he didn’t track it.  Is there a standard $ figure (college student for 1 semester) to use that the IRS will accept or to I have to just ignore the board portion of the question “Did you pay for room and board with a scholarship or grant”. 

In general I am resigned to the fact the student needs to pay taxes on the scholarship money used for non qualified expenses, just trying to understand the details and why an amount less then the difference between block 5 and 1 on the 1098T for the room and board question returns a smaller tax liability.

Thank you for your assistance. 

[DMarkM1]

The smaller tax liability is a result of having qualified education expenses that are not shown on the 1098-T such as books and equipment required for enrollment.  Room and board on the other hand are not qualified education expenses.  

[Carl]

@vmi9d3  Communicating correct information to you has become a bit of a challenge now, with all the other add-on posters in this thread. No two have the same exact situation and it's taking time to sort through all the post.

For one semester of the calendar year 2019 his room and board were listed on the Bursar bill, so I can easily calculate it, for the 2nd semester he lived off campus in a rental apartment.

The off campus room & board was not paid with any of the scholarship amount included in box 1 of the 1098-T. Remember, box 1 only includes money paid directly to the college for qualified education expenses. Therefore, not one penny of the off campus rent, utilities or food was paid for with the scholarship amount included in box 1 of the 1098-T.

There's three possible scenarios I see here.

Box 1 - $10,000

Box 2 - $27,000

Scenario #1:

The student received a check from the school for the amount of $17,000. At this point, considering the amounts on the 1098-T only (not taking into account books, not included in box1) the $17,000 is taxable income to the student. Hands down, end of that part of the discussion.

The student logs into their online college account, and in their financials section they see that none of the scholarship money included in box 1 was used for R&B. Not a single penny. The checked the student received for $17,000 is taxable income to the student.

Scenario #2:

Same as above reported on the 1098-T. The student received a check from the school for $12,000. So with that added to the $10,000 in box 1, it only comes to $22,000. The $5000 difference was kept by the school for R&B. Therefore you report that $5,000 of the scholarship was used for R&B.

Scenario #3:

Box 1 - $15,000

Box 5 - $27,000

Student received a check from the school for $12,000. Have the student log into their online college account and go to their financials section. There you see where $10,000 of the scholarship was applied to various classes. Then another $5000 was applied to R&B.  You report that $5,000 of the scholarship was used for R&B.

That means the check the student received for $12,000 plus that $5,000 (which totals $17,000) is taxable income to the student.

Your off campus R&B was not paid with any scholarship money, because you don't see any application of that scholarship money to the off campus living expenses, anywhere in the student's on line college account in the financials section of their account. It's an out of pocket expense any way you look at it. That out of pocket expense for R&B is not reported anywhere on any tax return.