How about if u get a scholarship from the college that exceeds tuition and u have to pay taxes on the part that exceeds tuition and fees, but the college is in a different state from yours and the student’s residence? To which state do u pay the state tax? Where the school is or where residence is?
you’d pay state taxes in the state where the school is, and the w2 (for campus work) would come from that loc too.
the difference between the 2 boxes on the 1098 is what you pay taxes on. if the 2nd box is more, that means that all possible money allocated to tuition and QEE has already gone to it (in 1st box). the difference is excess that’s taxable. of course it’s up to you to verify that the 1098 is accurate.
It would depend on the state you live in as well. Some states tax their residents on all income received (from anywhere). So you would need to check.
Oh crud! This reminds me if D18 gets that summer camp job she applied for in MA she’ll have to file MA state taxes next year in addition to possible taxes on scholarships in OK, thankfully Texas doesn’t have a state income tax!
We live in Massachusetts, my D’s school is in New Jersey. She pays state taxes in Massachusetts, her state of residence. She files a return in New Jersey so that she can get a refund of the state taxes withheld for her on-campus employment. New Jersey does not consider her scholarship as taxable income.
Could this get any more complicated? My least favorite financial aid moment was when one of my kids was applying to schools and on the phone a financial aid guy (from a certain Jesuit school in Boston that I won’t name) got frustrated with my unfamiliarity with some obscure tax form, and he said, “just ask your accountant about it.”. And I was thinking, “Yeah, I will, right after my chauffeur gets me home from my polo match.”
@moooop, you don’t need to be a polo-playing country club member to hire an accountant. Sometimes it saves money. It certainly saves time and headaches. We shipped our box off to ours last week and will let him deal with the scholarship confusion. I just wanted to understand it and to warn others that free money isn’t always entirely free!
I’ve already outsourced my plumbing, electrical, carpentry, auto repair, lawn fertlizing, and (after a branch went through my neighbor’s dining room window) tree trimming. And you think I should outsource the accounting too? My family is already wondering why they keep me around, and you want me to outsource the accounting??
LOL, @moooop, you can’t outsource the moral support you give your family. That alone should be worth the cost of keeping you around!
Any $ I’d save by having my accounting done by a professional, I’d have to spend on a food tester/taster, because if I wasn’t handling the accounting my days would be numbered. Like the singing dog, it’s not that I do the accounting well, its that I do it at all.
OP, my son has paid taxes on his scholarships every year. This year is the highest amount; he’ll pay taxes on about $9200 of scholarship money. Initially, I was confused and a little disappointed, but now I look at it as a huge blessing that my son got $9200 above the cost of tuition and fees this year; we pay so little for him to attend college! He does have a yearly outside scholarship that’s included in that amount, $6000, and it’s been a huge blessing.
So yeah, he was pretty shocked at having to pay a lot of taxes last year (both for scholarship and for 1099-misc work), but he’s learning! And graduating debt-free is very sweet.
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Oberlin won’t let us apply it all to tuition!"
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what exactly did the Oberlin award say? does it say something like $10k for tuition and $8k for room and board?
And how does Oberlin do its billing?
Is there just a list of charges and then a list of credits?
What is Oberlin saying in writing about how the merit was applied?
Anybody get the impression that a lot of people who are supposed to be declaring this scholarship $ on their taxes simply don’t , and they never get caught? I’m going to follow the rules, but I feel almost alone in doing so.
Well next year I think you can only claim AOTC if you have received a 1098T. So the IRS knows what’s on the form. And so if someone has to have the student declare some scholarships taxable to receive the AOTC then the student would have to file a return.
I’m sure there are many scholarship receiving students who do not pay taxes on those scholarships, just like the are waiters who don’t report all tips and plumber who work under the table and businessmen who write off lunches that really aren’t business lunches.
Gee, people used to claim kids who they didn’t even have before SSNS were required.
I remember being shocked when I found out that we had to pay taxes on S’s need-based FA. 
Do u have to report that the student was a partial year resident of the state the college is in when u do the state taxes?
@moooop I think a student is - or can be - a resident of their parent’s state all year, unless you are trying to establish residency in the college state.
The point of the info return (1098) is that the IRS gets it too. If it does not show up on the tax return, you will get a mail notice to pay or explain. I doubt anyone gets away with not paying:)
Possibly by some of it being taxed, you tax credit will cover. Fingers crossed.
Even a full ride is likely to have only $15K or so taxable (room, board). And that’s taxable to the student at their presumably low rate, so the AOTC should cover that and then some, if parents shift more of the scholarship to be taxable to the student.