Scholarships Exceed Tuition Expenses

Paying for College
1

Hello all,
My situation is the following:
I received $10500 in scholarships/grants and my Tuition total was $7000. Obviously, my scholarships were not enough to cover room and board. And therefore, I had to take other loans. But according to the values above, my scholarships exceed my tuition cost.
Question 1) In order to receive AOTC, should I put all the 10500 as my taxable income, and put all the 7500 as the out of pocket money I paid?
Question 2) Since my school is not required to fill my 1098-T form, should I fill it by myself? Or should I request for them to do it?

What other solutions do you recommend in order to get this AOTC?

2

You only need $4000 in qualified educational expenses to get the max $2500 as an AOTC, so no need to pay taxes o the full $10500. Do you have $2500 in tax obligation? Are you the student or the parent?

You can’t file a 1098-t, only the school can.

3

You can only use a maximum of $4,000 in educational expenses to get the AOTC, so you only have to pay taxes on that amount or less. The first $2,000 is the most lucrative, so for some people, just paying taxes on $2,000 is a good plan.

There are lots of ifs, ands, and buts, such as, are you an independent student or will your parents claim you as a dependent? Makes a difference as to how much of the credit is refundable, if any. Do any of your scholarships have restrictions as to what they can be used for such as tuition, room & board, books?

There are many previous threads on cc about AOTC. I suggest you search for and read them but keep in mind some things change a little bit each year.

The law changed this year about 1098-Ts. I thought most schools have to issue them now. You can’t do your own 1098-T. I would ask your school, maybe they issue them upon request. I believe you can still file for the AOTC if you can’t get a 1098-T.

4

I am the student. So I would allocate only $3,500 of the scholarship to my taxable income, therefore leaving me with $4,000 to get the $2,500 credit.
If I’m unable to fill the 1098-T, how would I report those values (the $4,000 paid for educational expenses) for the IRS in order to receive the AOTC?

5

I previously read older posts about this topic but none answer my question such as if I can partially allocate my unrestricted scholarships as income leaving $4,000 as out-of-pocket paid educational expenses.
I am a dependent student, full-time, starting school date: fall 2016
I am unable to file the 1098-T form, how then should I claim the AOTC?

6

Are you sure your school didn’t issue the 1098-t? Some schools have them on the website.

7

If you have 7000 of qualified expenses (and this would be tuition, fees, books and supplies, but not room/board, and it might include more than the tuition reported on the 1098-t), then 3500 of your scholarship is already taxable income (I think - I’m a little rusty on this, so someone correct me if I’m wrong). You would need to shift another 4000 to taxable, in order to claim the 2500 credit. So 7500 would be taxable, and 3000 not taxable.

8

Can’t the scholarships be used to pay the room and board (even if you took out loans)?

9

If you are a dependent for income tax purposes then your parents claim the AOTC, not you (though you can ask them to give you the up to $2500 credit they receive, in cash or check).

10

It is perfectly normal not to get a 1098-T when your scholarships exceed the amount of billed tuition/fees. My youngest doesn’t get one as that is our situation, too. You use your itemized statements as proof of what you paid.

Also be aware that some scholarship money is not flexible. For instance, some of my youngest’s aid is earmarked for tuition. I cannot simply decide that I want to claim I used that for room and board and pay taxes on it. If it’s earmarked for tuition, it has to go for tuition. Examples might be a scholarship labeled as a “tuition” scholarship (as opposed to a scholarship for a specific dollar amount) or a tuition remission/tuition exchange award. Your billing statements should have all this stuff clearly labeled.

11

I believe the school is not required to issue a 1098T if the scholarships exceed qualified tuition and fees. But you could see if they would issue one upon request.

I am not sure but I thought a 1098T was necessary to claim the AOTC.

First off all, if you are a dependent student, can your parents claim you as a dependent on taxes, and will they?

Then they would claim the AOTC on their tax return. Would they qualify income wise? I think married filing jointly can have up to $160,000 MAGI for full credit.

They would enter education expenses for a dependent. On our tax software it asks for numbers off the 1098T, like qualified tuition and fees billed or actually paid and scholarships/grants received. You can also enter book expenses. Then it has a line that asks for amount of scholarship that paid for nonqualified expenses.

That’s where I put the amount that my D was going to include in her income on her tax return, so that we could claim the AOTC. The software then takes the scholarship, subtracts the non qualified expenses and thus gets the scholarship that applies to qualified expenses, which are tuition, fees, books. The remainder is the amount paid out of pocket for QEE, which can be used to claim AOTC.

For example: Total scholarship $10,500
Qualified tuition and fees paid $7,000
Books $500
Scholarship used for qualified expenses= Total scholarship - amount used for non qualified (taxable scholarship amount) expenses = $10,500 - $7,000 = $3,500

$7,000 qualified tuition and fees + books $500 = $7,500 - scholarship used for qualified expenses $3,500 = QEE available to claim for AOTC $4,000

So your parents could claim up to $4,000 of QEE for AOTC and you would claim $7,000 as income on your taxes (if you had book expenses of $500).

12

Good information straight from the horse’s mouth:
https://www.irs.gov/individuals/education-credits-questions-and-answers (Page Last Reviewed or Updated: 29-Jan-2017)

13

The taxable amount of $3000 is less than your standard deduction of $6300, so you are not required to file at all.

14

“Can’t the scholarships be used to pay the room and board (even if you took out loans)?”

It can be used for those expenses but room and board are not qualified expenses so that amount is taxable income. The IRS rationalization is that food and shelter would be necessary if the student were not in college, so they are not college related expenses.

15

@Lilliana330 yes, the student could simply take the total scholarships and subtract, tuition, fees, book expenses and report the excess scholarship of around $3,000 on taxes. If they have no other income they might not be required to file a tax return. But it eould make FAFSA filing easier and FAFSA lets you deduct taxable scholarships included in AGI in question 44d.

But if they want to claim AOTC, the student would have to include more taxable scholarship in income, to have qualified expenses left to claim for AOTC, that were not covered by tax-free scholarships

16

I see. So by that IRS rationale, if the college’s required dorm expense is much more than a low-income parent would have paid for shelter (home rent) normally, and the college’s required meal plan is much more expensive than it would have been to feed the student at home, wouldn’t the difference in fact be entirely college-related?

Since freshmen are required to live on-campus, and required to be on (expensive) meal plans, shouldn’t there be an allowance for the difference between home room/board and college room/board costs, rather than having the IRS tax the entire need-based room/board scholarship as if “the same” expense would have occurred at home? Any hive wisdom?

17

How much is the student paying in tax on the non-qualified room and board scholarship money? Is it more than the parents are saving by not feeding and housing the student? It’s definitely less than the student/parents would have to pay if there was no scholarship covering room and board.

18

The IRS is not going to reimburse you for all college related costs, but if you qualify income wise, you can get an education credit for some.

We get to claim a tax credit of about $900, our D pays $100 in tax, that’s a fair trade in my imo.