1098-T / AOC Tax Credit Questions

Paying for College
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<p>Dependent students have an income protection allowance of $6K, plus allowances for state, federal, and SS taxes. If they have excess scholarship income included in the AGI (or in their bank accounts) make sure that you separate out the income from work and the income from student aid. They are both asked for again on the FAFSA - income from work is used to calculate the state and SS tax allowances and student aid income is excluded from the EFC calculation. Do not report any amounts from student aid refunds as assets! Hope that helps a bit…here’s a link to the EFC Formula Guide so you can see where the EFC is coming from (if you can stand a few more charts/tables, that is !):</p>

<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf&lt;/a&gt;&lt;/p&gt;

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<p>I have never been so confused in all my life in regards to the 1098T my son received. He is a freshman and Auburn has billed amounts for both Fall2011 and SPring2012 included on the 1098 but only partial Scholarships/Grants for Spring2012. WHY? I swear I really am an intelligent person, but this is so crazy. Also, he has external scholarships that they did not include at all. So, if I use what they sent for 2011 you would think everything is just great. he has $23790 reported as qualified expenses and $19358 as scholarships/grants. However, I know this is going to be a big problem next year because it will include the $11000 they still hadn’t credit him from the institution for scholarships grants for Spring 2012 and also there is $3000 in outsides scholarships he received that are not inlcuded. He could end up with a VERy large number in that Scholarship block come next years tax time. Should i adjust these numbers myself just to include Fall 2011 or go by what they send (where do I include outside scholarships) and hope for the best next year?? Help!!</p>

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<p>Yes, you have to adjust the 1098T figures to your own tax year basis in order to line up aid received with payments and to account for other scholarships and expenses (like books and required course supplies that you likely paid out of pocket). I make my own spreadsheet for each of the kids and use that to file taxes with. The 1098’s are almost worthless when schools report on an academic, not calendar, year basis.</p>

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<p>So you basically disregard the 1098t and use your own records? Well, if I was to do that I think it would be a little easier to understand anyways. We would have $23790 reported expenses (plus $1382 for books and computer) and scholarships equivalent to $29520. Obviously there is an excess of scholarship $ but nothing like what could end up happening next year when part of it is not reported this year. So does that mean I don’t get any AOC? Also, does my son then have $4348 in income for his own taxes?</p>

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<p>Yes…although I make sure the scholarship/grant aid on the 1098T is accounted for as long as it doesn’t include amounts for the spring semester. For most students, computers would not be a qualified expense. The exception would be for those programs which require a specific computer and usually the schools then give the kid the computer and include the cost in the program fees.</p>

<p>As to the AOC, it’s your choice whether to take it or not, assuming you paid some portion of his expenses. You might want to take a look at IRS Pub 970 and the current “What am I doing wrong?” thread on this board. If your S has no other income, the $4348 would not exceed his standard deduction of $5800 and he would have no federal tax liability but you would likely benefit more from taking the AOC which is 100% of the first $2K in qualified expenses. However, your S may have to pay more in state income taxes.</p>

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<p>I can’t comment on AOC, because I don’t feel that I am a tax expert. I just know you have to claim it as income for the kid! But I do know that if the $4348 is all your son earned in 2011, he won’t have to report it on his taxes (unless you have state income tax filing requirements that would require him to file -that is, if he earned more than his deduction). Obviously, if that money combined with other earnings takes him over the federal filing requirement he WILL have to file a return & pay taxes on the money. Our D had to pay state and federal taxes last year on her scholarship money. We chose to have her pay taxes on that money so that we could take our AOC; we came out better off as a result, even after paying her taxes for her.</p>

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<p>becksgirl,
Here’s a thread on the 1098 issue and how others, including myself, have dealt with it:</p>

<p><a href=“http://talk.collegeconfidential.com/financial-aid-scholarships/1251995-year-end-tax-planning-parents-freshman-3.html?highlight=1098[/url]”>http://talk.collegeconfidential.com/financial-aid-scholarships/1251995-year-end-tax-planning-parents-freshman-3.html?highlight=1098&lt;/a&gt;&lt;/p&gt;

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<p>kelsmom, do you use a tax preparation program like TT? I thought I heard that TT doesn’t take this into account and that one must crank the numbers themselves to see which way is more advantageous for their situation. </p>

<p>Just trying to get my mind into the mode of doing taxes, I hate Feb!</p>

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<p>I noticed on the FAFSA that they have the line to input AGI from the 1040EZ, and then just below it there is also a line for “income from work, tips, etc”, also from line 1 of 1040EZ. It sounds like the second line should only be from work, but both tax programs I’ve tried include the scholarship amount (and the FAFSA says use line 1 from 1040EZ). </p>

<p>I did put the scholarship amount in the right area on the FAFSA so it should be deducted, I assume, and son’s EFC didn’t come out as bad as I feared.</p>

<p>But are the lines on the FAFSA for AGI and then “income from work” supposed to be the same amounts? Which include the scholarship. Maybe they just worded it strangely on the FAFSA? (Sorry, I can’t get back in right now to see the line numbers on the FAFSA, since I just submitted)</p>

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<p>entomom, I have tried every which way to get this 1098 thing to come out right and always use several different programs to double-check the taxes. Both TaxAct and TT seemed to make the adjustments easily as I toyed around, although TaxAct asked more specific questions and made me feel a little more confident in the answers. This has been true in the past few years for us, as well.</p>

<p>We still haven’t officially filed, as I am getting about a $100 discrepancy between the two programs, but the numbers adjustments for the 1098/scholarship things came out basically the same.</p>

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<p>No…they are used for entirely different things in the EFC calculation. Put only the student’s income from work (W-2 or self-employment) in the second question as the formula will use it to calculate offsets for SS taxes and state taxes. You can see how this works by viewing the EFC Formula Guide here:</p>

<p><a href=“http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/010512EFCFormulaGuide1213.pdf&lt;/a&gt;&lt;/p&gt;

<p>Also, remember to answer FAFSA question 44 correctly when it asks about income from student aid as that will be deducted from the student’s AGI for the EFC calculation.</p>

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<p>I use TT to file my taxes, but I did the math by hand. I then entered my numbers in TT according to the way I moved the money around. I wondered why I bothered to pay for TT, but then again it helped for other things.</p>

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<p>Thanks sk8rmom for your help. I thought a computer would be a qualified expense, my bad. I think I will take your advice and use my own records only using tax info regarding Fall 2011 semester. Will have to plug info in to see how it all works out. thanks again, sure I’ll be back with some more questions.</p>

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<p>Thanks! I did it incorrectly, then. Will have to fix it once it’s processed. It will likely make little to no difference, but should have trusted my first impression.</p>

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<p>Thanks fried and kels, I’ll get my calculator out!</p>

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<p>I have a separate question that relates to this. My son has qualified expenses of $10,850. He received a $5000 scholarship, so none of this scholarship should be taxable.</p>

<p>The 1098T is in his name. We are about to file a 1040EZ form for him because he earned $1900 in a summer job, and he needs his refund. Do we have to deal with this 1098T form on his tax return which would mean a 1040 rather than the EZ form? Or do we deal with this on our (parent) tax return because he is our dependent? Or do we not do anything with it because the scholarship is less than the qualified expenses?</p>

<p>He is a freshman, we are new to this, and we have not tackled our tax returns yet. Thanks for the help!</p>

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<p>The most advantageous would be to have the child file his own taxes for the $1900, and report the 1098T on your own tax return. Your son wont have any tax liability, so the credit wouldn’t benefit him at all. If you’re claiming him as a dependent, you claim the credit yourself, which should benefit you greatly. In your case, you have >$4000 worth of qualified expenses even after the scholarships, so you shouldn’t have to fiddle with the “allocation” like the big discussion here centers around.</p>

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<p>Wondering if I could jump in here to see if I am understanding this correctly. My daughter’s 1098T has her entire year’s tuition listed on it. I take half that figure for the calendar year 2011, correct? </p>

<p>Her institutional scholarship, grant, and outside scholarships are listed (the figure is correct-I checked), and they actually total $870 more than the tuition/qualified expenses, so that $870 is taxable income for her, right? She also had a campus job (not work study) that she grossed $800 at. I have receipts for app. $400 in books (I actually spent more, but my daughter bought them on campus once she got there because she added a class and did not save the receipts), so if I back out of her $3600 of her scholarship money to her taxable income , I can then claim the $4000 I have paid to get the AOC? This just seems too good to be true.</p>

<p>So, her taxable income will be $5270 ($800 earned income, $870 excess scholarship money, and $3600 more scholarship money designated for room/board so it is taxable and I can claim the $4000 I spent for the tax credit.)</p>

<p>I wasn’t going to have her file an income tax return when we just thought she had the $800 earned income because it is below the threshhold for mandatory filing, and she did not have any federal tax withheld from those wages, so she is not due a refund. But, should she file even though she will not owe any taxes, just to show that we DO realize this money is taxable? (it is below the standard exemption amount of $5800). Lord knows I do NOT want to mess up when it comes to the IRS.</p>

<p>Which leads me to my last two questions. This first one is kind of stupid–I think I know the answer, but I just want to be super sure. I can still claim her as a dependent on my tax return even though she may be filing her own return, correct? </p>

<p>And, those books I talked about earlier—I bought them in 2011, but some of them are for the spring 2012 semester. Is it ok to use them as a qualified expense for 2011, since that is when the funds were spent? (And of course, I will not claim them next year for 2012).</p>

<p>Thanks to all you wise veterans who are helping everyone out here. I’ve learned so much by reading here.</p>

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<p>If you have actually paid at least $4K in expenses and her scholarships/grants were not restricted then your plan makes sense. She doesn’t have to file federal tax forms if she’s not required to do so but remember that she may have some state taxes due on the income. Yes, you should include the books you bought in 2011 since you’re filing on a calendar year basis.</p>

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<p>I’m confused about this too. My kid’s school reported both tuition and scholarships on a school year basis since spring tuition was billed in December and scholarships were disbursed in December. </p>

<p>I paid only for fall in 2011. the payment for spring was due and paid in January 2012.</p>

<p>Do I adjust the numbers for BOTH expenses and scholarships, and report only the fall amount to line up with what I paid? Do I treat the money paid for spring semester that was paid in early January as if it had been paid in 2011 to line up with the 1098T? Or should I report all the expenses and scholarships and only use the payments I made for fall toward the AOC. I paid enough in the fall alone toward qualified expenses qualify for the full credit. </p>

<p>I don’t think I can adjust both numbers to match up with my records and my payment schedule, since if I report less scholarship income (i.e., only the fall half) than is in the 1098T, that’s probably not going to go over well.</p>

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<p>This is a great thread if for nothing else than to know I’m not alone in my confusion and my solution to qualify for AOC. I too am in the same situation of having 2 kids receive more scholarship money than qualified expenses. While I am relieved to have figured this all out I’m going to have to see if I did it right last year when I claimed full AOC credit for both kids. I’m pretty sure I did, but I may have to amend one or both of the kids tax returns to show the scholarship money. There shouldn’t be any tax liability for them since they would be below the $5800 limit.</p>

<p>One thing not mentioned that applied in my case is that D was billed for health-related fees which that are qualified expenses but which would be more beneficial if I claimed as a medical deduction. I backed those out too and added it to D’s taxable scholarship income. The numbers all work without double counting.</p>

<p>I’m glad to get up to speed on some of the finer points contained in the 970 regarding paying college bills and filing taxes. I still have one more yet to enter and one to graduate college this spring.</p>