1098 T inaccurate breakdown of grants vs tuition

I am so confused.  Since my husband and I got 1098 T forms, don't we HAVE to list them on here?  And why are there two places to list this stuff?  Under income, you can list scholarships, but then you enter the 1098 T only under the attempt to get the tuition deductions/credit.  The way our school breaks down the charges and credits is very weird, nothing is for the right time.  For instance, we received a grant toward our daycare for spring 2010, and the grant is listed under scholarships, but the charges for the childcare aren't because the charges show fall 2010 and spring 2011.  Also, we get a resident's discount on tuition, but this is listed both as a "grant" and as a credit under the charges????  So, our overall "grants" are really about $4300 less than the total listed on the 1098.

Also, last year I meticulously went through all of the paperwork, separating when money actually came in versus when it was paid out, it took hours, and then a lady who works on my campus said that her accountant told her not to put the 1098 on at all because of how our college breaks this stuff down.

What do I do?  I want to do it right, not get audited!
  • I would like to know this answer too!! Reading all questions like this on the forum to try to figure out what I should do with my 1098 T without owing money for no reason!
  • Hi Allison and tmike.  I'm working on an answer for this, but have run into a problem I haven't figured out yet, with entering taxable scholarship information.  I'm running it by my colleagues to see if anyone else has a solution.

    In the mean time, take comfort in knowing that you're not alone in being thrown for a loop by the way that schools report information on 1098-Ts!

    I'll be back later with details.
  • I have the same question, my school breaks down my charges and scholarships/grants/loans unusually also. the 1098-t  is showing that I'm billed 16,700.00 for one semester yet showing my scholarships/grants/loans for both spring and fall semesters. So confusing!
  • I'm having the same problem as well. I have a 1098-T and have no clue where tto report it on the tax return.
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This is quite long - many people can just enter their 1098-T info and move on, but Allison brought up some interesting aspects of this, and others had questions too, so I've tried to answer all of you here!



Allison:

Q) Do we HAVE to enter the 1098-T forms?
A) Typically, you WANT to enter the information from the 1098-T's because the expenses reported there can save you money. However, the 1098-T itself isn't really part of your return - it's just something you use to help you figure out the right numbers to report.  You can skip entering the 1098-T's and just enter the numbers directly as if no 1098-T had been received, if you prefer.  See below.

Q) Why are there two places to enter this stuff?
A) There are two things going on taxwise:

  1) Certain expenses might qualify you for an education credit or deduction, and
  2) Scholarships/grants not used for tuition and fees expenses might be taxable income for you.

These two things overlap because scholarship information is used for both 1) and 2).  

TurboTax will pick up the scholarship data when you enter the 1098-T data, and carry it to the income screen you mentioned, so you don't have to enter it on the income screen unless you have no 1098-T info to put in.


Q) The way our school breaks down the charges/credits, nothing is for the right time.
A) First expenses, then scholarships/grants:

For expenses, the school can choose to report on the 1098-T either:
 - what they billed during the year(box 2) OR
 - what was actually paid during the year(box 1).  
For example, they might bill you in 2010 for spring 2011, and you might not pay that until 2011.  In that case, what shows up on the 1098-T depends on which way they choose to report.

For scholarships and grants, they report (in box 5) amounts that they "administered and processed" in 2010. That could include scholarships for non-qualified expenses, or for various time periods. Sometimes they reported scholarships/grants for the whole school year at once, rather than reporting half each semester.


Q) Our daycare grant is listed, but not the charges.
A) Whichever way the school chooses to report (amount billed or paid), only "qualified" expenses are included in boxes 1 or 2.  Day care is generally not a qualified expense, so I would be surprised if they reported your day care charges in box 1 or 2, though they might include such things in supporting documentation they provide.  

The scholarship amount in box 5 can include anything that's in the school's official "cost of attendance", like room & board, even if it's not a qualified expense.



Q) Our resident's discount is listed under both grants, and as a credit.
A) Well, OK, that sounds like they're just showing that they provided the funds (grants) and applied them to your account (credits).  I think most scholarship/grant payments would be reflected like this.  To be consistent with their reporting, you can go ahead and use the undiscounted tuition as expenses paid, and include the grant that was used to help pay it in scholarships/grants.


Q) Should I just not put the 1098-T in at all?
A) Sometimes, that's the easier option.  I'll go through the steps below. It's very common for the 1098-T to not match what's on the return.  It's just information to help you figure the right amounts to report.  TurboTax will let you do it either way.




tmike432:

Q) I don't want to owe money for no reason!
A) Me either!!  Unless you have scholarship income in excess of your education expenses, your 1098-T can only help reduce your taxes by qualifying you for an education credit/deduction.  See below for the entry process and more details.


teddy val:

Q) My 1098-T shows billing just for one semester, but scholarships/grants/loans for both semesters.
A) First, loans won't figure into the equation for figuring either an education credit/deduction or for figuring taxable scholarships/grants.  Payments made via a loan disbursement are treated as if you made the payment yourself at the time of the disbursement.

   Second, it's not unheard of for schools to report scholarships/grants this way on a 1098-T.  See Allison's "timing" question above.  You will need to dig through the information and figure out what was paid on your behalf during 2010.  Be sure to include any amount that was paid in the spring, which might have been reported on your 2009 1098-T!  See below for more details.

   And finally, a reminder that, if they reported what they billed, you need to figure out what you actually paid during the year.  The amount billed may be helpful in tracking that down, but it isn't the figure you'll need.  More details below.


tara104:

Q) Where do I enter my 1098-T information?
A) You can click on the Federal Taxes tab, then Deductions & Credit, then (if it comes up) Explore on My Own, then scroll down to the Education area with the graduation cap icon, and click on the button to the right of "Education Expenses".  




Everyone:

-------PART I, for the purpose of getting an education credit/deduction-----------

First you need to figure out the total amount PAID in 2010 for "qualified expenses" (paid by you, from a loan, or with a scholarship/grant).  That includes tuition and required fees, and usually, amounts that you are required to pay for books and supplies as a condition of attending class.  You can read the details in IRS Pub. 970 (link below).  You'll use anything in box 1 of your 1098-T, and any other supporting detail the school provides about credits from payments, loan disbursements or scholarships/grants, plus receipts for other expenses, and add it all up to get the total PAID in 2010.


Entering the expenses in TurboTax will take no more than 3 steps (go to Federal Taxes / Deductions & Credits / Explore on My Own / Education Expenses and step through the interview):

 1. TurboTax asks for what's reported on the 1098-T.  Usually, you can just enter it exactly as it's printed.  If you have more than one 1098-T, you will enter each one separately.

 2. If there was an amount reported in 1098-T box 2 (amount billed), TurboTax will ask you how much of that amount was actually PAID in 2010.  It's common to be billed one year and pay the next, so here you enter just the part of the box 2 amount that was actually PAID in 2010.

 3. After you've entered your 1098-Ts, TurboTax will ask if there were additional expenses not on a 1098-T.  If you were billed in 2009 but paid in 2010 and your payment is not included on your 1098-T, you would include that here, in addition to any other qualified expenses that don't appear on a 1098-T.  Only "qualified" expenses count - not room & board, travel, day care, etc.  Tuition and fees are examples of qualified expenses. (If you want to skip the 1st two steps, you can just skip ahead to this question and enter the entire amount paid in 2010.)


Second, you need to determine how much was received in scholarships and grants.  For most people, all of the scholarship/grant money is for paying "qualified" expenses.  Sometimes, though, as Allison described, some of it is specifically designated for a non-qualified expense, like room and board or child care.  Sometimes, the amount of the scholarships/grants will be a little more than the expected qualified expenses, to help cover a few non-qualified fees.

The scholarship/grant amount that IS used to pay qualified expenses is subtracted from those expenses to get the amount that can be used to figure your education credit/deduction.  Scholarship/grant money that is NOT applied to reduce your qualified expenses must generally be reported as taxable income.


To enter the scholarship/grant money that was for "qualified" expenses in 2010 takes just two steps:

 1. when you're entering the 1098-T, there may be an amount in box 5.  If that amount was all used to pay qualified expenses in 2010 (it often is), enter it here.  If not, just enter the part that WAS for qualified expenses in 2010.  If part of it was used for non-qualified expenses, or was not used for 2010, don't include that, but keep good records.
 
 2. When you finish entering your 1098-T's, TurboTax will ask for scholarships/grants not on a 1098-T.  Enter any remaining scholarship/grant money that was used to pay qualified expenses in 2010.  That might include an amount that was reported on 2009's 1098-T, but was actually used in 2010 (you kept good records, right?).  Don't include any amounts that were used in 2010 for non-qualified expenses.

If your scholarship/grant amount was more than your qualified expenses, see below.

You will get an "Education Expenses Summary" screen.  Check to be sure the totals match what was actually paid for qualified expenses, and what scholarships were actually received in 2010 to put toward that amount.



--- PART II, for the purpose of reporting income from scholarships/grants  

There are two cases where scholarship/grant income is taxable - excess funds, and non-qualified expenses:

 1. Excess funds (more common). If:
    - your qualified education expenses for 2010 were completely paid by scholarships and grants, AND
    - you had some additional scholarship/grant money over and above that,

then simply enter all your scholarship/grant money as described above, even if some of it was for non-qualified expenses.  TurboTax will correctly report the excess as taxable income.  Your "Education Summary Screen" will show the totals, and tell you that the excess will be added to your income.


 2. Non-qualified expenses. If:
   - your qualified education expenses for 2010 were NOT completely paid by scholarships and grants AND
   - you had some scholarship/grant money that was designated for non-qualified expenses,

then you must enter this part separately, using forms mode.  

If you're using TurboTax online, you'll need to pick up or download a copy of the desktop edition. See here for how to move your return: http://turbotax.com/support/go/GEN12160

Click on Forms in the upper right corner, and find the "Student Info Wks" in the list of forms.  Open it and scroll down to "PART V - Education Assistance...".  On line 5 of Part V, enter the amount of your scholarships/grants that was designated for non-qualified expenses.




Here's the link to IRS Pub. 970 that has more details: http://www.irs.gov/pub/irs-pdf/p970.pdf
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