1098T Scholarship Taxation

I have a question about the taxation on an academic scholarship. Let's say my tuition is $20,000 (Box 2 of 1098T), and the school gives me a scholarship of $17,000 (Box 5 of 1098T) - which is used purely for tuition - not for books, living expenses, or room and board - I've effectively never touched or seen this money. Am I taxed on that $17,000 as if it's income? If not, how do I input this 1098T form accurately, without getting taxed on it? Thanks!
  • Is the amount in block 2 for fall of 2012 and spring of 2013? What period is the scholarship for?
Hi Tarlow,

If your 1098 T shows
2: 20000
5: 17000

And in 2012 you paid total tuition of 20,000 with 17,000 of it coming from scholarships, you should be set.

The system will record those numbers and look at the difference (3000) and report that you had a personal tuition expense of 3,000. Then it will calculate your situation and decide if you should use the deduction of the credit. The credit is 20% of the uncovered tuition amount, (up to some limit), so it usually turns out to be better unless you are in a high tax bracket.

If you did not pay for Spring until January (instead of December) you have a different problem. You'll need to know when you made the payments--including when your scholarship was applied to your debt at the school. If all the bills were paid by the end of December, you're set. The scholarship isn't taxed as income--but it does reduce the amount of uncovered tuition which you can claim for a credit. So you may notice your refund jumping up if you had claimed the tuition already and were just adding the scholarship.
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