1098-T reports fall/spring tuition charges in box 1 but only fall scholarship/grant in box 5

Paying for College
1

I have been reading a lot of posts regarding 1098 on this forum but still don’t quite sure so I am hoping to get some answers.

D’s is a freshman so this is the first 1098-T we received, box 1 included both fall and spring tuition but only fall financial aid was reported in box 5 because the university post the spring tuition and fees in 11/2014 but the spring financial aid on 1/6/2015. Normally, each semester’s FA is larger than the QEE by a little over 4K. Making matter worse, without thinking, I paid the spring semester on 12/30. In reading the IRS pub. 970 regarding AOTC it seems like I can either report the charges, payment and FA transactions on 2014 or report the whole thing on the 2015 filing because the spring FA would be considered as a refund of credit before filing for 2014. Am I reading the writing correctly?

The university also charge three additional fees, two of them are a one time charge to all freshman in the fall semester and they are a transcript fee and a freshman program/event fee. The other is a activity and recreation fee which charged to all students every semester. They are not included in box 1 on the 1098 but all three are mandatory. I don’t know do they meet the IRS rule as QEE. Any opinion?

2

Don’t use the institution’s 1098 as more than just another source of data. It will confuse you. You need to know how much you paid. So yes, if the money you sent in December applies toward costs in January, you can count it for the total spent in 2014. Just don’t use it again in 2015.

Those random fees that are specifically required of all students, yes, those are QEE. QEE includes tuition, fees, books, and equipment/materials specifically required by the university. Pay attention to your D’s course requirements. Happykid’s sewing shears that were required for a theatrical costume design class were QEE. Meals and housing aren’t QEE.

What did you pay that was used for QEE expenses for the two semesters? Something? Nothing?

If I understand what you have written correctly, your daughter has scholarships that specifically and fully cover tuition, fees, books, and materials, and that part of her other expenses are also covered. If that is so, she will owe tax on the left-over balance from the extra scholarship money for the fall semester that was applied to to non-QEE expenses.

If it wasn’t scholarship money, but rather loans, then any QEE paid for with that loan money is QEE for the AOC.

If there was scholarship money and loans, and at least some of the scholarship money was not specifically assigned to QEE by the university (for example a specific “tuition and fees scholarship”) then you can choose to apply the loans to the QEE (and claim those QEE for the AOC), and she will owe taxes on any scholarship money that you consider to have been spent on non QEE.

I can’t remember off the top of my head the rules about Pell money. I think it is OK to use that for anything, including living expenses, which means that you can count Pell toward that, and use loan money and other money you paid as the QEE.

3

The money was provided by the university as a need-based financial aid and Pell Grant, The Pell Grant is only $600 so not much comparing to the need-based FA. On the FA award letter it stated that the award is based upon estimated costs for academic year 2014-2015, then list out each amount for tuition, r&b, books, all fees, even including personal and traveling allowances. The award amount is large enough to cover the tuition, book, fee plus part of the r&b but no wording on the award letter as the money is restricted to be used on any specific item(s). It posted on the student account as a lump some “need-based grant” and reduced the account balance. As I understand Pell Grant is unrestricted. Our out-of-pocket payment was about $8000 for the 2 semester.

4

If the grant money isn’t restricted, and you spent a bunch of money too, then you can look at different options for how you break it all out for taxes. Things also are different if she’s your dependent for taxes for 2014, or if she is independent, so figure that out too.

  1. Consider that whatever you paid the college/university for the fall semester and anything you or your daughter paid out of pocket for books and materials as applying to the QEE and claim the full AOC, and have your daughter pay any taxes that she would owe for the grant money (other than Pell) that wasn’t needed for QEE. It looks like she’d have taxes on something like a total of 8k (what you paid plus what is currently taxable)

  2. Forget claiming the AOC, and just have your daughter pay any taxes she owes on the grant money (other than Pell) that was in excess of the QEE. It looks like she’d have taxes on about 4k that was more than the QEE.

  3. She only will owe federal taxes (and maybe state taxes) on a certain level of income and depending what her total income was in 2014, there may be some room to play with the numbers that would result in a better overall family tax result. In which case you could consider some of whatever you paid went to QEE and some didn’t. For example, if you claim only 2k toward the AOC, then she has taxes on some 6k of the grant money.

Nightmare yes? But from the size of her grants, it looks like it’s a good kind of nightmare to have.

Wishing you all the best!