<p>My son is a freshman and I will be doing my taxes and FAFSA this weekend and I want to make sure that I understand how this works. From last year, I remember that someone posted that any scholarship dollars that he received that go to room and board are taxable. For 2013, only the first semester of room and board would be included. Tuition, books, supplies and health insurance are not taxable. Is this correct?</p>
<p>You should receive a 1098 T from the college. This will have the money awarded, and also the allowable expenses billed by the school on it for 2013. You add to that books, or other allowable expenses. Anything above that amount received in aid is taxable income for the STUDENT…not the parent.</p>
<p>Qualified education expenses(QEE) are tuition, mandatory fees and required books and supplies. Subtract those amounts from the total of scholarship/grant money to get the taxable amount. It is taxable to the student and if the total amount of student income including jobs, interest etc. exceeds $6100, the student has to file a return for 2013.</p>
<p>Chapter 1 of IRS Pub 970 has the details:</p>
<p><a href=“http://www.irs.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p970.pdf</a></p>
<p>You may not get a 1098T from the school if scholarships/grants exceed QEE. Schools aren’t required to provide one if that’s the case. The primary purpose of the 1098T is to make people aware of the expenses that can be used for the AOC.</p>
<p>If the terms of the scholarships/grants allow, you can choose to allocate amounts to non-QEE and have the student report those amounts as additional income so that you have QEE to claim the AOC. The AOC being a credit is likely worth more to you than what the student would pay in additional tax. See the examples in Chapter 2 of Pub 970.</p>
<p>Are you using software to prepare the returns? Generally their education topics will walk you through this pretty well.</p>
<p>In my experience the forms I’ve gotten from the schools bore no reality to what the amounts paid or the scholarships. The bottom line is that you have to add up what the scholarship money actually received in a tax year, not awarded but actuallly received. Subtract from it the tuition, fees, and other allowed expenses actually paid in that same year. That is the amount that may be subject to taxation. If the amount, however, along with other income is below that threshhold for a student, which it nearly always is the first year, when only the first semester costs are in the picture, and the student isn’t making much money over the summer and that calender year.</p>