<p>In my daughter's final (spring) semester just before graduation, her college issued a 1098 T that showed only Pell and TAP in Box 5 of the 1098 T with almost nothing in Box 2. (Amounts in Box 5: $2000 TAP & $2000 Pell)</p>
<p>The tuition charges (and room and board) for this spring semester were billed in December so they were reported in the previous year's 1098 T. </p>
<p>MY QUESTION: Should she report only $2000 (Pell) as taxable income since TAP, a tuition restricted grant, is supposed to be tax free? Or does the entire $4000 need to be reported as taxable scholarship income?</p>
<p>Thank you.</p>
<p>The 1098s are not always correct. Look and see when your daughter’s account was credited the PELL and TAP for the spring semester. Not when the school billed it, but when the Pell and Tap and other grants showed up in the billing and then when the bill was paid. You can ask the bursar’s office about this. When charges are billed is not an issue for tax reasons; it’s when they are paid. So if that final spring semester likely has the PELL and TAP funds hitting the account in January and paying off the bills that the bursar showed in December. So for that year, the PELL/TAP/scholarship money given for that term that was not used towards qualified expenses during that spring semester (tuition, fees-check those graduation fees too, books, necessary supplies) has to be reported on that year’s taxes as unearned income. Doesn’t really matter the source of fund, just take the dollar totals of grants received and subtract out allowable expenses. That amount is unearned income on the tax return if your DD had enough earned and unearned income that requires her to file a return or she has some money coming back. You should also see if she or you would benefit more for the American Opportunity credit as well. </p>
<p>cptofthehouse, Pell & TAP were credited in Feb/March and Tuition & fees were billed in December. Are you saying I should ask Bursar when tuition/fees were actually paid? What if they weren’t paid until the spring? </p>
<p>This is all after the fact (tax returns already filed) as I’m continuing (trying!) to learn more about 1098Ts and AOC. Daughter did have earned income and wound up paying taxes on all this Pell & TAP. I did her tax return and hope I didn’t cause her to overpay taxes.</p>