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I received a 1098-T. Why is it reducing my refund? I thought scholarships were not taxable income.

  • I am experiencing the same problems reported in the other posts. The only place I have entered scholorship income and expenses is on the 1098-T. My daughter's school reported her tuition on line 2 not line 1. I think Turbo Tax is not considering this amount as an expense. Turbo Tax is telling me we have no education expenses and my daughter must file a return because her scholarship received exceeds her expenses. What's up Turbo Tax?
  • Lucy
    This is the right amount...please on.
  • I am having the same problem. My daughter's school report the amount of aid received (loans and grants) in box 2 but nothing in box 1 despite the fact that we paid close to $2000 out of pocket. TurboTax is telling me to report the excess amount as income.
  • My husband receives a 1098-T every year, but we are not paying for his education the VA is.  Do I add this to our Taxes?  I haven't been adding them because all the money is coming from VA.
I also got a little confused by this section, especially when my estimated amount started getting into the thousands.

It seems like the answer is, in a nutshell (if you're a grad student with an assistantship/fellowship): any money they give you that actually becomes yours to spend is taxable, any money that they "give" you as a tuition waiver is not taxable.

I was afraid that I was being dishonestly optimistic in thinking this way until I found IRS Publication 970 (http://www.irs.gov/pub/irs-pdf/p970.pdf). The relevant info is at the top of page 8, under Graduate Education. It's pretty simple and unequivocal, as far as I can tell.
    Had the same problem then read a question on the next step answered by a turbo tax expert:
    Any amount you paid with student loans is treated the same as out-of-pocket, as the loans will be paid back. 

    BTW, if you are referring to the question asking if you actually paid $$$$ in 2012, it is not asking how much YOU paid, it is asking how much was paid from all sources during 2012.  You are basically confirming that the amount billed on the 1098-T was actually paid. "

    so on the next step you have to check yes as the school was paid the amount event if you didn't pay it.
    • All sources including loans, grants, scholarships.
    Just to add -  I was having the same problem as many:  grants didn't nearly cover qualified expenses for son's tuition which we have been paying and turbotax started saying that it was more and needed to be declared as income.  Didn't say that the first time, but in adding information and returning to that area later, it started giving that message.  Had to delete son from the education area and start the education area over, which solved the problem.
    • I've been having a similar problem.  I entered the info from line 2 on the 1098-T and had no scholarships or grants (line 5 is blank).  All tuition and other expenses were paid out of pocket by me.  Turbotax states that I am getting the amount in line 2 as a deduction, but then states that it is taxable income which ultimately reduces my refund.  This seems contradictory to me.  How can money I paid to the college out of my own pocket be considered taxable income, or income of any kind?  And how can a deduction increase my taxes?
    • I just tried what kurik9 said above, and it didn't change anything for me.
    • Everyone listen to this.............im a graduate student...........i know exactly what happened.............all the fee waivers, scholarship have been put in scholarships/grants section..........this is a new law........it has nothing to do with billed amount..........
    • qualified expenses: any tuition fees, laboratory fees, course fees, special instruction fees,
      Non Qualified Expenses related to school: Non credit course fees, Housing and Dining Costs, Books, supplies and equipment, Medical services fee, Insurance, premiums, Transportation fees, application fees, testing fees, transcript fees, tuition installment plan fees, fines,late charges

      for Teaching assistants or Research Assistants: amount reported in BOX2  for qualified tution and related expenses is reduced by tuition waivers granted under IRC 117(d)
    • i'm having this same problem.  Started out with daughter on my 1040 and got the message that she'd have to claim this as income.  So I held up filing my 1040 and started a return for her.  She had a part time job, too.  All of her tuition was covered by grants/scholarships.  We had some surplus money that was refund, which I understand SHOULD be considered taxable.  However, no where does TT ask what the tuition was versus what the scholarship was.  Basically its telling me that the full amount of her fall semester scholarship is taxable---yet more than 1/2 of it paid for tuition.  the surplus should be the only part that's taxable.  What is the solution to this?

      I also have to call the business office tomorrow because box 2 is completed but it doesn't reflect what was in the school's payment plan that was initiated while we waiting for the financial aid to "come through"
    Now I see why. You don't have any "out of pocket" expenses for "QUALIFIED" eduction expenses. Room and board are not qualified education expenses. Only tuition, lab fees and books can be deducted. Since you didn't pay any of that out of pocket, "YOU" don't have any qualified education expenses. They were covered by the schollarships/grants. Also, any amount off those scholarships/grants that EXCEED the qualified expenses, is taxable income.
      This is just a wild guess here, but maybe you entered data in an area that asks you to "enter schollarships, grants, tuition not on the 1098-T. So you may have actually entered your education schollarships twice. Might want to check that.
      • That's what I was thinking Carl. TT automatically enters the scholarship amount on the next step and I think people are re-entering it by accident.
      • I did not enter anything after the 1098-T form and TT is telling me that we do not qualify for education expenses because my daughters scholarships exceed her qualified expenses, Yet her scholarships didn't even cover all of her Tuition room and board and we paid the difference out of pocket.
      • room and board is taxable.
      That portion of schollarships and grants not applied to "qualified" education expenses is taxable income.
      • I must not be entering the data right then.  All of the scholarship was applied toward tuition and I had to pay the difference out if pocket.
      • I had the same thing happen! What gives? Have you found out anything else?
      • Same here - everything was applied to tuition and I paid the difference out of pocket.  Why is it telling me my child will have to declare it as income?
      • I am experiencing the exact same results you have described. The amount billed on 1098-T line 2 was additional payment beyond what the scholarship amount was from 1098-T line 5. TurboTax thinks there was more in scholarship than the tuition expense as a result. Apparently there is some misunderstanding somewhere in the Tax Laws and the 1098-T. Any help here would be greatly appreciated as we certainly didn't get more in scholarship than the cost of tuition and the amount we paid for the amount billed in Line 2 was hard earned money.
      • Same problem here.   My daughter's scholarships are for tuition and books, and other qualified expenses.  Turbo tax is telling me that my refund is reduced by more than $2,000 and that my daughter has to claim $3435 as taxable income.  But, the scholarships were used for qualified education expenses?  What gives, Turbo Tax?????
      • Same problem.  Scholarship is being added to w-2 income line.
      • Same problem except I am the student and turbotax is telling me I made that scholarship as income when really it did not see any of it. It went to income instead. IDK what to do!!!!
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