Does 1098T go on parents' or student's return?

For 2012 Box #2 on the 1098T shows about $8,000 in "qualified tuition & related expenses."
Box 5 shows $17,100 in total scholarships & grants.
The "non-qualified" difference is about $9,100.
Do we (the parents) include any of this 1098T info on our tax return?
If not, does our college daughter enter the 1098T info on her tax return since she worked part-time ($9,000 total wages) and will file a tax return?
Since we are claiming her as a dependent it would seem logical for us to have to include the "taxable amount" on our return.
The 1098T has the daughter's SSN on it.
I called the IRS and the lady read the same info as is available in Pub 970 to me, which answered nothing.
Which return does the 1098T go on?
Thank you


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    Hello milligag2000 –

     

    I too went around the circle several times in TurboTax. I am an engineer and have my MBA, but I am not a tax professional. I’ll share my thoughts with you and hope that they help. Please refer to my original update where I attempted to explain my steps for entering the 1098T info.

     

    Overview:

     

    Your child received scholarships & grants (Box 5). If that figure exceeds what the school states are the “Qualified Tuition & Related Expenses” (Box 2) your child may have to file a tax return and possibly pay taxes on the difference.

     

    To avoid the TurboTax (TT) circle logic, one must do some of the thinking outside of TurboTax.

     

    Parent:

     

    If the parent and/or your child paid more for the “qualified tuition” expenses than the figure in Box 5, the parent can use TurboTax to compute a possible education credit (3 possible to select from). TT handles that well and picks the best credit. The parent will need to have the itemized costs to compute this and remember that certain costs (room, food, transportation, etc.) are not acceptable. However, other related expenses (computer, required class fees, …) can be included in the credit calculations (see Pub. 970).

     

    If you did not spend more for qualified expenses than the amount shown in Box 5, the tax credits do not apply. The 1098T info is then not used on the parents’ return.

     

    Child:

     

    The child may have to file a tax return – Per TT – “…All dependent children who earn more than $5,950 of income during the year must file a personal income tax return and might owe tax to the IRS. Earned income only applies to wages and salaries your child receives as a result of providing services to an employer, even if only through a part-time job.”

     

    The way I read that is that if your child did not have earned income in 2012, or if the earned income plus the difference between Box 5 and Box 2 on the 1098T is less than $5,950, the child would not have to file an income tax return.  Verify this for yourself.

     

    If the child must file a tax return, the 1098T info goes on the child’s return (nothing goes on the parent’s). If you have additional qualified expenses, make certain to add those to the figure in Box 2 and enter that total in TT.  As I recall there is a screen that asks you if the figure in Box 2 is correct.  This is where you would answer “No” and then enter the correct total in the box in TT provided.

     

    If TT tells you to go to the parents’ return (the circle trap), ignore it and click “Done” and proceed with the child’s return. As I recall, the “taxable income” you entered doing the 1098T questions will be entered correctly in the child’s tax return form even though TT did not comment on that or explain it during the process. Verify this when the return is finished or go check the 1040 form in TT.

     

    I hope that this helps. It is disappointing that TT has not assisted with the “circle” issue and issued a clarification or an update to the software.

     

    Remember, I could be wrong, but the above seems logical. The parent either gets an opportunity to apply for one of the education credits on their return, or the child must report the taxable portion of the scholarships/grants on his/her return subject to the rules in Pub 970.

    • Thanks, Mike.  Since our box 5 is less than box 2, and the scholarships plus what we paid add up to Box 2, the scholarships were not taxable and neither my daughter or I could get the credit since my income is too high and she is a dependent.  Either way, problem has been solved.  Thanks for your information.
    • Tried this, since it seemed to make sense.  So, just ignore when TT tells you that your student can't deduct books, etc since they are claimed as a dependent -- and you've already added books to the corrected total?  How important to remove 1098T from parent's taxes?
    • Not exactly -- Let me clarify with what I believe to be right --

      If you are working on the student's return, you can adjust the total for the "qualified tuition and related expenses" (Box #2) if you have additional tuition related expenses or fees that the student had to pay to be enrolled. You cannot add the cost of the books, supplies, equipment, or other fees in this block. Look at Pub 970 for exact wording. It's pretty clear.

      If you are working on the parents' return and attempting to get one of the available tax credits (e.g., American opportunity credit, ...) to reduce the parents' taxes, you can include additional expenses like those I mentioned above. Again, check the exact wording and examples in Pub 970.

      As for removing the 1098T from the parents' return, simply go to the Forms window, find the 1098T, and delete it from your return. However, if TT did not show that you qualified for any educational credit I am fairly certain that it will not include the 1098T or any of that information in the parents' return.  Check that when you print out the return to review.

      Let us know if that makes sense.

      It would be nice if TT would clarify the handling of the 1098T , and update the program.

      Bottom line -- one might think it odd that after working to get the scholarships/grants, the student is then "penalized" by having to pay taxes on any "surplus" money using the tax definitions and restrictions provided. The room rent, meals, the dorm fees, transportation, and other costs that are needed to keep the student in school are simply not allowed in the calculations. If you find a better answer, let us know.
    • So, no one can subtract the books (qualified expense) from the surplus?
    • In most cases you are correct. Here is an example (below) from Pub 970. If a student absolutely has to purchase the books or materials from the university, then it may be a qualified expense. It seems like a fairly rare situation -- see the example. What one can use on the student's return is very specific and restricted. The allowed expenses on the parents' return are broader but you have to have enough to qualify for any credit.

      Good luck on this.

      Pub 970 – Page 39 Excerpt on Qualified Education Expenses

      Example 2

      Donna and Charles, both first-year students at College W, are required to have certain books and other reading materials to use in their mandatory first-year classes.  The college has no policy about how students should obtain these materials, but any student who purchases them from College W’s bookstore will receive a bill directly from the college. Charles bought his books from a friend, so what he paid for them is not a qualified education expense. Donna bought hers at College W’s book store. Although Donna paid College W directly for her first-year books and materials, her payment is not a qualified education expense because the books and materials are not required to be purchased from College W for enrollment or attendance at the institution.
    • Ah, I now see this in the 88-page pub 970 -- so even though the books are required, their expense is not qualified.  I also have a one-time class fee which is required for all first-year and transfer students, which was not listed as a qualified charge on the 1098T.  Just doesn't seem fair!
    • This might help -- from a university's site about the 1098T


      Qualified tuition and related expenses refer to tuition and required fees, such as segregated fees and lab fees, a student must pay to be enrolled at or attend an eligible education institution.  Tuition waivers and remissions are considered reductions to qualified tuition and expenses.

      Qualified expenses do not include:

      1.  Amounts paid for any course or education involving sports, games or hobbies unless the course or other education is required as part of the student's degree program or is taken to acquire or improve job skills.

      2.  Charges and fees for room, board, insurance, transportation, personal, living and other family expenses.

      3.  The cost of books and equipment are generally not qualified expenses because eligible educational institutions usually do not require that the cost of the books or equipment be paid to the institution as a condition of the student's enrollment or attendance at the institution.  However, some campuses may have a mandatory textbook fee or rental program which may be included as a qualified related expense.
    • Reading the description, it seems to me the one-time required class fee (over 1K) should be qualified.  Will call, but expecting the usual "consult your personal tax advisor".
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    Mike Sz.

    I asked the same questions yesterday and have yet to receive an answer (looks like you've been waiting much longer?)  I've been on hold with Turbo Tax for 10 minutes and still have another 15 to wait.  Maybe someday we'll get an answer
    • Just got off the phone with Turbo Tax; as long as your son/daughter is a "dependent" on your tax return, you use the 1098-T and not the dependent
    • Well, then why is Turbo Tax asking the dependent if they received a 1098-T?  Shouldn't it skip this section since someone else is claim this person as a dependent?
    • Thanks for the replies --

      I am a parent, not an “official” tax person. I think I’ve got an answer that makes sense – after calling the IRS (no real help), the Cashier’s Office at the university, and the Financial Aid Office at the school, and after reading Pub. 970 here is what I came to.
      The information on the 1098T is strictly information (provided to the IRS) and it may be used by the parent to compute a possible tax credit, or may need to be used by the student to report taxable income. It may or may not include all the actual monies paid towards tuition and qualified fees. The school provides only what they know about and billed.

      1. If the amount in Block 2 (Amounts billed for qualified tuition and related expenses) exceeds that in Block 5 (Scholarships or grants) then the parent may look into getting a possible tax credit by claiming the “additional” amounts (greater than in Block 2) paid for qualified expenses.
      Note: books, computers, other “required” fees to attend the school, and other directly related expenses may qualify for the credit. Room rent and meals do not get included. TurboTax will figure out which of the possible tax credits to use for the parent.

      2. If the amount in Block 5 is greater than the amount in Block 2, the difference may be taxable income that needs to be reported on the student’s tax return. See if there are any other qualified expenses that the school did not include in Block 2, and if there are, TurboTax provides a block to enter the correct figure (different than reported on the 1098T). The remaining difference is taxable income to the student and the student will need to file a tax return. – a real bummer!
      In our case our daughter worked part time and earned about $9,000 (that was great). However, she also received about the same amount in scholarship money above what the school used for tuition and fees (qualified expenses). Since we the parents did not pay more than the $9,000 in 2012 we did not get to apply for any credit, and in the end all our daughter’s dorm rent, meals, books, other fees, etc., was taxable income to her in addition to her salary.  We naturally paid the $1,200+ taxes owed since she was not in a position to cover it.
      I hope this makes sense and helps others. If an expert gets on this one and if I am wrong, please let me know.

      Mike Sz.
    • since the 1098T goes on parents taxes, do I delete it off the students? We did his before mine... but havent hit submit yet.  Do you also know how to answer 1st yr of college question - if he went 2 years ago for part of a trimester & dropped out, started over in 2012 at a new school (no credits carried over).
    • This is ridiculous that it is so confusing and complicated.  There are millions of us out there with the same question and yet the issue still comes up with the dependent says they are claimed by someone else.  That section shouldn't even come up!  I've sent several questions and am still on hold with TurboTax to figure out what to do as now I think my son will have to file an amended tax return!
    • I removed the 1098-T from my daughter's return and entered it on mine.  Box 5 is larger than box 2.  Since the scholarships and grants reduced her amount owed.  Now turbotax is stating that since her scholarships exceed her tuition (which is doesn't), the 1098-T should be entered on her taxes since they are taxable!  It's going in circles here.  First, turbotax says to enter 1098-T on the parent's taxes if the student is a dependent, but now turbotax is telling me to put the 1098-T on my daughter's taxes!  And why is it saying that the scholarship amount exceeds the amount of tuition when it does not?
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