Does a college scholarship really count as income?

My son is in is first year at college.  His college issued a 1098-T showing 43,000 in tuition billed and 24,000 in scholarship.  His full school-year scholarship is 2x the amount the college listed because they credit half in each semester.  We only paid $4000 for the school year, all of it paid in 2012.  The trouble is that when TurboTax asks for the amount we actually paid, it sees that his scholarship was more than his educational expenses paid and tells us he has to count it as income.  I'm pretty sure his scholarship doesn't count as income.  Can anyone help me navigate this?

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    some may be taxable.                                                                   
    Taxable Scholarships and Fellowships                  
    link          
    http://www.irs.gov/publications/p970/ch01.html#en_US_2011_publink1000178003
                  
    c/p
    "If he had a $15,000 scholarship and used $10,000 for tuition, $1,000 for books, and $4,000 for room and board, then the $4,000 would be taxable income. Colleges are not required to report scholarship or fellowship income to the IRS, so it's up to your son to understand the rules and account for the money appropriately on his tax return."
    • I agree with this answer, that scholarships for things like housing are taxable. But, that may not be all bad because you might have lost out on tax credits if it was all tax free. And, the housing portion of the scholarship and maybe more will be taxable to the child.
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    For the "amount actually paid" entry in TurboTax, include the amount paid by the scholarship for eligible expenses. If you don't do this, TurboTax thinks that the scholarship is more than eligible expenses, and treats part of it as taxable.
    • I did this and TT still thinks the full amount of the scholarship is taxable....?
    • So, on the Student Information Worksheet in "Forms," there is a section, I believe Part IV, that has a place for total scholarships, then around line 4 or 5 it asks about "Amount required to be used for other...., and it deducts that number (taxable) leaving the "Tax-free" portion.  Have you filled that out correctly?
    • I have much the same problem. My daughter has a scholarship for tuition, room and board. I have always entered the amount applied to room and board as taxable income for her (but I don't remember where in the interview TT prompts you to do that). But this year when I was going through the TT interview regarding deductions, TT asked for the amount of scholarship applied to tuition (among other things - but it didn't mention room and board). When I entered that number TT took her taxes owed way up. Later in that same section there was a question about the amount of the figure I had entered earlier as her scholarship applied to tuition was applied to room and board (among other things), but since I had only entered the amount applied to tuition, I had no figure to enter. Either I'm really misunderstanding this or it's a major league glitch in Turbo Tax.
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