Clueless on filing taxes for full scholarship, please help!

From the IRS instructions for form 1098-T:

*File Form 1098-T, Tuition Statement, if you are an eligible educational institution. You must file for each student you enroll and for whom a reportable transaction is made. Also, if you are an insurer, file Form 1098-T for each individual to whom you made reimbursements or refunds of qualified tuition and related expenses.

Exceptions. You do not have to file Form 1098-T or furnish a statement for:

-Courses for which no academic credit is offered, even if the student is otherwise enrolled in a degree program;

-Nonresident alien students, unless requested by the student;

-Students whose qualified tuition and related expenses are entirely waived or paid entirely with scholarships; and

-Students for whom you do not maintain a separate financial account and whose qualified tuition and related expenses are covered by a formal billing arrangement between an institution and the student’s employer or a governmental entity, such as the Department of Veterans Affairs or the Department of Defense.*

https://www.irs.gov/pub/irs-pdf/i1098et.pdf

Just checked again. No 1098T for the first 2 years when there were some fees to pay out of pocket. As we do not have the form and the QEE total from school, there may be some fees not qualified for QEE. We did receive the 1098T for the last 2 years when the gift aids exceeded tuition and all fees. I remember I had emailed the FA office a few years ago to request the 1098T and they said there was none.

Just checked the wiki, the 1098-T requirement changed in 2016.That is the reason.
https://en.m.wikipedia.org/wiki/Form_1098-T

We have our eldest is currently a freshman so filing taxes for him is brand new. He received full tuition merit from his university and received additional $15K from outside scholarships ($2.5k NMSC, $5K and $7.5k separate private scholarship). Let me know if I should start a new thread. OP stated that the first semester of their D was filed different than this year’s return because D’s 2016 return only had 1 semester of tuition, fees, etc. That’s is what we assume we would do for our S. However, on our S’s 1098T, it included the full tuition merit and just the $2.5k NMSC, totally $52.8k. The bursar’s office said since students are billed for the full tuition amount in September, the full tuition merit is included in the 2017 1098T. They also don’t know why only the $2.5k NMSC scholarship was included in the 1098T and not the other scholarships. They advised us to contact the IRS for more clarification. Before I do that, I thought I check in with the CC expert on tax matters.

  1. Is including the full tuition on the 1098T standard practice? Does it matter for the purpose of filing for my S’ returns? I understood that he won’t be taxed on the university’s tuition merit, but will be taxed on the private scholarships since that covered R&B, fees and books. He also has a small earned income (< $3k) that he will report.

  2. Should my S receive 1098T from the private scholarship organizations? We have not received anything from them.

  3. As parents, we paid for the initial deposit of $500 and lap top out of S’s 529. For our parent tax return purposes, we assume that we do not qualify for any AOTC since we did not have any expenses. Correct?

Thanks.

If the other scholarships were from an outside organization (i.e. not given by the school), they don’t need to be be included on the 1098-T, which is produced by the school, unless these scholarships were “administered and processed” by the school.

As noted above, the production of the 1098-T is the responsibility of the school. The IRS isn’t going to have a clue as to why some scholarships were included and others were not. Only the school has this information.

Prior to tax year 2018, the school had the option on the 1098-T to report either the qualified expenses billed by the school or the payments received by the school. If the expenses were billed or the payments were received during the applicable tax year, it was reported on the 1098-T. Many schools bill for the fall semester in July and the spring semester in December, so if the 1098-T is reporting expenses billed, yes, it is standard practice to include the full year’s tuition on the 1098-T.

No; 1098-T forms are only issued by qualified educational institutions (the school).

Correct, unless you want to make up to $4k of the otherwise tax-free scholarship money taxable to your son, so that you can free up some money for the purpose of claiming an education tax credit.

@mommdc
Your breakdown seems consistent with what I read last year. When spouse was using Turbo Tax, he indicated that she was not a dependent. I think that might be the source of the problem. Past discussion on Collegeconfidential indicate that we can still claim her as a dependent. I think he also gave her credit for paying the summer tuition. So, perhaps if we declare her as a dependent and then indicate that we paid $5,000 for the summer tuition, we will be asked the questions about her scholarship and it will calculate the rest for us and give us the American Opportunity Tax Credit. Does this seem right to you?

It is really important that we do this right because it looks like if we submitted right now with no changes, we would not get the tax credit and it indicates a $500 refund on my daughter’s tax return. So, if she does not pay the $25000 that is due on the taxable portion of her scholarship, she might be subject to penalty and interest. Or, maybe it is no big deal because it is OK for her to put down on tax form that she is independent. Who knows???

If you can claim her as a dependent, then you should. Because if you are eligible to claim her, then she can’t claim herself.

On your return, you can indicate the amount of scholarship that paid for quaified expenses, and the amount of scholarship that paid for nonquaified expenses, and indicate what the qualified expenses for tuition, fees and books were for the year.

That should then result in a $2,500 AOTC for $4,000 adjusted QEE. (total QEE minus tax free scholarship).

On your D’s return you can enter her work income and indicate the amount of scholarship that paid for room and board ($10,250), it will then make it taxable income to her, and figure the kiddie tax.

***typo: $25000 should be $2,500

You have to claim her as a dependent in order to get the AOTC. Parents who file taxes as ‘married, filing separately’ also cannot take the AOTC. If parents are divorced, only the one claiming the child as a dependent can claim the AOTC.

Ok, this is starting to make sense to me. Here is my situation. My son is a freshman and this is our first 1098-T. His scholarships & grants money exceed his expenses by around $4,500. So when he did his taxes he said that we can claim him as a dependent (which we can and will) and he claimed the $4,500 as income and paid the taxes on it. He was not eligible to take any of the 3 possible education tax credits and the program he used said we could claim one of the credits on our return. Is that right?

IF that is right then what number do we put in the line that reads “Remaining grants and scholarship the student is including as income”? Do we put the total amount of the grants and scholarships $20,200 or the $4,500 that he claimed as income? This is all VERY confusing!

It depends.

If all of your son’s expenses that are considered qualified for any of the education tax credits were paid by scholarship and grant money, you will not be able to claim an education credit on your tax return for his expenses unless he declares as taxable on his tax return some of the scholarship and grant money that would otherwise be non-taxable.

What form and line number are you asking about?

If the amount of scholarships and grants exceeded his qualified education expenses by $4,500, then he would normally declare that amount as taxable income and pay income tax on it, which it sounds like he did. In order to make some of the qualified expenses available for you to claim an education tax credit on, he would have to declare an additional amount of scholarships and grants as taxable income, and pay the additional tax. For instance, he could take $4,000 of the scholarship and grant money that paid some of his tuition, and that is normally non-taxable, and add that to his taxable income which would add to his tax due. You could then use that $4,000 of tuition expense that is now paid for with taxable funds to claim the full American Opportunity Credit, which would decrease your tax bill by $2,500 (assuming you’re eligible to use the full credit). If you’re talking about doing this for tax year 2017 and your son has already filed his tax return, he will need to file an amended return first.

Would he then need to adjust his 1098-T numbers accordingly to make that happen? Or just add $4,000 to his taxable income.

You don’t “adjust” the 1098-T numbers, unless they are wrong, and in that case you would have to contact the school that prepared the form and ask for a corrected form.

You might be able to allocate more of his scholarship towards room and board, which would make it taxable, and then have some tuition left to claim for AOTC.

That is, if the terms of the scholarship allow this.

Is there a limit to what he can claim as income? In order for us to get the full $2,500 credit he would need to claim $8,500 of additional income from the scholarships.

His grant does allow it to go towards room & board, and he did put some toward room & board. Is that something we need to show on the tax return somehow? I don’t see a place in H&R Block to allocate toward room & board the only option is toward “educational expenses”. Is there a line on the tuition payments worksheet to show that?

No! The IRS wants you to declare as much income as possible! (Just kidding)

No; he would need to declare an additional $4,000 income from the scholarships. $4,500 already required to be claimed as taxable income + $4,000 additional to allow you to claim the AOTC = $8,500 total.

@momofcskid Watch out for the kiddie tax increase when you put that much in taxable scholarship. When I tried different values in tuition paid out of pocket, the best amount was not having the full $4000 there but a few hundred less as my daughter’s Federal and state income tax would also increase at the same time. This would depend on many factors like your kid’s income level, state income tax calculation, etc. So even you may get the full $2500 by putting $4000 more as taxable scholarship, it may be not the best when you factor in your kids tax return(s).

Thank you all of you! I was going to have him try with the added income and see how that turned out for him. If there is a big enough difference on our end and not a huge difference on his end it would be worth it but we will try it both ways to see.

We’ve never filled a change before. Is there anything we should know before doing that? (If we go that route.)

Thank you all so very much for all of the information! We had NO idea we were going to be getting a 1098-T (in fact none of us had even heard of one before) so this came as a big surprise to us and we really had/have no idea how to handle it the best way. We tried looking things up on the internet but there is not a lot of information out there. Again thank you all so much.

I find this stuff helpful:

https://www.irs.gov/pub/irs-pdf/p970.pdf

https://www.irs.gov/pub/irs-pdf/i1098et_17.pdf (This is the 2017 instructions, so use it now for filing 2017 taxes. Things will change for tax year 2018.)