We are preparing the tax return for 2016, and we are very confused about form 1098T.
My mom is claiming me (current freshman enrolled in college starting in fall 2016) as a dependent. Say the “amount billed for qualified expenses” in box 2 of 1098T is $50,000 for the 2016-17 academic year (so $25,000 for fall 2016 only) and “scholarships or grants” in box 5 of 1098T is $30,000 for the fall 2016 semester. This means there is more scholarship money than tuition charged. In fact, we paid nothing for my education this year, and I oddly received a refund check because of the scholarship surplus.
My understanding is that my mom is not eligible to claiming any education credits (American Opportunity Credit and Lifetime Learning Credit)–is that true? If she can claim any credits, how do you calculate adjusted qualified education expenses?
Additionally, where do you report the information about scholarship/tuition? Do you treat the $5,000 surplus in scholarship in 2016 as parent’s income, student’s income, or does it at all need to be reported? I had some income from 2016 but I wasn’t planning on filing a tax return of my own because the amount didn’t exceed the filing threshold.
So if I am understanding this correctly, the school reported one semester of scholarship and one semester of qualified billed expenses on the 1098T for (fall) 2016?
If there is $30,000 of scholarships and $25,000 of QEE then you would have $5,000 in taxable scholarship income.
Would your mom qualify income wise for the AOTC?
How much other income did you have in 2016?
Do you have book expenses for 2016, that you have receipts for?
Your taxable scholarship income would be reported on your tax return.
They reported a year of billed expenses and a semester of scholarships, and they checked the box saying the billed expenses is for the one whole academic year. I was also just checking my college’s website and found out that the billed amount is just for tuition; the total COA after adding room/board/fees is much higher, but the scholarship is still covering it all with about $1,000 surplus. So when reporting, do we consider 1)the billed expenses actually typed on form 1098T or COA, and do we consider 2)one semester’s or entire year’s info?
Yes, my mom would be qualified income/status wise.
I earned about $1,500 in 2016.
My college is very flexible with course material so finding pdfs/photocopying books/borrowing from the library are usually not a problem. I honestly didn’t have that much additional education-related expenses (paid probably $10 for one book last semester…).
You can use the school’s method of billing for the spring semester in the fall (december) and not posting the scholarships until the spring, and for most years it will be pretty close. For example, for the 2017 tax year you’ll have spring 2017 scholarship posted in Jan, a fall tuition and scholarships posted in Sept, and a spring 2018 tuition bill posted in Dec 2017 (two semesters of tuition, two semesters of scholarship), but for that last semester (spring of senior year) you will have a large scholarship and no tuition billed to offset that, so it will all be taxable. Or, you can match up the tuition/fees billed in Dec with the scholarships awarded in Jan, and pay the taxes on the room and board in the year received.
This sounds very complicated but TurboTax, TaxAct or other tax software programs ask a series of questions and make the calculations for you. You still have to decide if you want to use the spring tuition to offset any tax due now or pay it all in the year you are a senior. There will be a question where you enter the 1098-t figures and then it will ask you ‘Are these figures correct?’ If you say No, you can enter the tuition and scholarship amounts that are correct.
For my daughter, I do not use the numbers on the 1098-t. I take the school’s bill and match up the scholarships with the QEE (tuition, fees), and then I figure out the books and supplies, and enter those on her tax forms. She pays tax on the amounts she receives in FA that covers her housing.
If any of your FA is loans, exclude those as they aren’t taxable.
I had to do my taxes “by hand” this year as I chose to make a 529 withdrawal nonqualified in order to claim the AOTC. Turbo Tax/HR block couldn’t handle it. All I can say is…yikes.
Your taxable scholarship income goes in the income box with the students earned income on the students return. On the line next to it, you write the amount of the income that was scholarship and put “SCH” next to it. Turbotax and the free HR block can handle this.
You can use your own records to figure the amount of your scholarships. If questioned by the IRS, you simply produce your records. And you can put those figures into turbotax as well.
@ordinarylives Do I put the entire scholarship amount or the difference between scholarship and COA as income? And for AOTC, neither I nor my mom can claim it because we didn’t make any actual tuition payments, right? Thank you!
Neither. You include only the amount of the scholarship that is taxable. Scholarship $ - tuition/fees - required texts = taxable scholarship amount reported on the 1040. Scholarship dollars used for room and board, parking fees and other non-qualified expenses are taxable, so don’t subtract the whole COA from your scholly.
Are you using one of the free software packages listed on the IRS site? Because those will figure the amounts for you.
For many, perhaps most, families, it makes sense to voluntarily make more of the scholarship taxable so as to be able to claim the AOTC. My D has scholarships worth more than her QEE so she’s already paying taxes on the surplus. We added about $2,000 to that figure. She paid a few bucks more taxes, I got almost $2000 tax credit.
Like you, my D’s earnings are not very high, so adding to taxable income didn’t actually cause her to pay much in taxes. I found TaxAct to be the easiest to plug different numbers in and find the sweet spot for maximum benefit. I was working her taxes and mine at the same time as they play off one another.
@Madison85, in the OP’s case where the school reported two semesters of tuition and fees, but only one semester of scholarship on the 1098T, is it ok if they match the scholarships to the semesters of tuition, even if the scholarship posted in 2017?
So that if tuition and fees was $50,000 for the year, and scholarships for two semesters (fall 16 and spring 17) was $60,000, they would report $10,000 in taxable scholarships plus work income on the 2016 tax return.
You can’t move the scholarships to the previous tax year, but can moved the billed tuition to the next tax year. If you’ve actually PAID any amount of the spring tuition in December, that money has to be used in the December tax year.
Yes, but aren’t the rules for education tax credits such that the expenses must be paid during the year for education term in that year or first 3 months of following year?
Do the same rules apply when figuring taxable scholarships? It isn’t the student’s fault that the school doesn’t post spring term scholarships until January.
Normally the student would be reporting $10k in taxable scholarship every year. So $40k total. If the student goes by the way the school posts the scholarship, they wouldn’t report any taxable scholarship the first tax year, then $10k the following 3 tax years, and $30k taxable scholarship the last tax year, that would be $60k total.
She can match up the tuition to the tax year for the scholarship. If the tuition (QEE) is $20k for the fall and the scholarship is $30k (because r&b is included), the student can report $10k in income for 2016.
For 2017, the student will have $20k in spring tuition, and $20k in fall tuition, and $60k in scholarships for the 2017 tax year. That should be close to what is on the 2017 1098-t also, although in the school’s view it is actually reporting fall 2017 tuition and spring 2018 tuition, with spring 2017 scholarship and fall 2017 scholarship.
If the student uses the 1098-t, and it has the fall 2016 tuition (say $20k), spring 2017 tuition ($20k) but only the fall scholarships ($30k), the student would have no overage for 2016 taxes at all, ($40k in tuition offsets $30k in scholarships) but then $10k is ‘wasted’ (although maybe the parent would get AOTC for 2016). The burn is that in 2020, there is no billed tuition (already used in 2019 taxes) and $30k in scholarships - all taxable. Therefore no taxes in 2016, tax on about $20k ($10k per semester) in years 2017, 2018, 2019, and then the big one in 2020, for a total of $90k in taxable scholarships over 5 years. If she matches up semester by semester, it would be $80k, saving tax on $10k overall.
But you aren’t paying the scholarship, you get getting the scholarship. If you earn money in December but your employer doesn’t pay you until Jan, you can’t claim that income in the tax year earned, only in the tax year paid. I don’t think you can move the spring scholarships to the prior tax year.
One new twist to using the spring tuition to off set the previous year’s scholarship (or just using the 1098-t figures as they are issued):
I looked at DD’s 1098-t yesterday and saw only fall 2016 tuition and fall 2016 scholarships and grants. She did not go to school in spring 2016, but where was the spring 2017 tuition? Her school does bill the tuition in Dec and post the spring, and then I back it out, so did expect to see it.
She’s on a semester abroad this spring. Although I was told it would be ‘just like going to school on campus’ it turns out it isn’t, at least as far as payments work. There is a company that organizes this exchange, and even though the school sends professors and the courses are all the same as on campus, the school issued all the FA to DD, and then we had to pay the tuition/room to the private company. I don’t have any idea how the 1098-t will be issued next year as her regular college will have double the scholarships/grants (spring and fall) but just one semester (fall) of tuition and then this private company will have to separate tuition from room charges (never saw any figure on what is tuition and what is fees to the private company and what is housing bill).
She’ll probably take a course this summer at our local school too, to that will be another 1098t.
I am forever grateful that my D’s school bills and posts all charges and credits for both semesters in one year. They even issue a (correct) 1098T when scholarships are more than tution which they don’t have to.