information go on? The dependent child or the parents?
Here’s my situation. My daughters 1098T lists scholarships that are $500 less than the total cost of tuition. Putting her info in turbo tax, I marked she’s a dependent, someone else claims her and it asked about the 1098T info so I inputted that. Then it asks is any of the scholarship money for room and board. Yes 1/2 of the scholarship was for room and board so I inputted that amount. Then I noticed her refund was going down. I guess because the room and board part of the scholarship is taxable to her, ok fine if that’s how it is I just want to confirm?
I asked on another board and those folks were saying the 1098 shouldn’t be listed on the kids return but the parents. I"m not sure that is correct so hence my post. I think we both have to input the info on our returns is that right? And although the 1098 mentions nothing about the money being applied anywhere, my thought is if I don’t say it was used for room and board then it looks like all but $500 of her tuition was paid by scholarships and we won’t qualify for the American Opportunity Credit.
So my question is does the 1098 info get listed on a dependents return and will the amount of the room & board part of her scholarship be added to her income? Or am I just to list the 1098 info on the parents return?
The 1098-T information doesn’t go on anyone’s return. The 1098-T is an informational document that may or may not be useful in determining education tax credits and deductions. Whether this information is used to assist in completing the student’s return or the parent’s return depends on who is claiming the tax credit or deduction.
And yes, grants and scholarships that are used to pay for room and board are taxable income to the student.
In our case 1098T says that scholarships are $3,000 more than billed tuition and related fees.
So normally we couldn’t claim AOTC.
My D has a tuition scholarship and a state grant. She reports the state grant as taxable because she uses it for room and board.
We then get to claim fees and books for AOTC.
On the parent return we indicated that we had education expenses for a dependent, and had received a 1098T
(this was in Tax Act, but I think TT is similar, you csn try it and tell me later if it worked)
We put billed amounts in box 2 of 1098T, then scholarships in box 5. It asked about other info from the form.
We added course related expenses (books) that are not required to be purchased from the educational institution.
Don’t put anything in room and board field, instead where it asks, “was any of the scholarship amount used for nonqualified expenses?” you can put that in there.
If she had a scholarship specifically for room and board, she will have to report the entire amount as taxable income on her return.
If the scholarship didn’t specify what it can be used for, you might only need her to include in her income enough, so you can claim AOTC.
I haven’t done my D’s return yet, so I don’t remember all that she had to enter.
For purposes of the “kiddie tax” (IRS form 8615), taxable scholarships and grants are considered unearned income. Generally, for full-time dependent students under the age of 24, the first $1,050 of unearned income is not subject to tax, the next $1,050 of unearned income is taxed at the student’s rate, and any unearned income greater than $2,100 is taxed at the parent’s highest marginal rate. Of course, it’s more complicated than this simple explanation, so anyone who needs more information should read the instructions for IRS form 8615.
Scholarships in excess of tuition, qualified fees and books are taxable income to the student.
Also if the scholarship specifies that it has to be used for room and board (non qualified education expense for purpose of figuring tax-free scholarships and AOTC), it would be taxable income.
The tax due would depend on other student income, the standard deduction for a dependent student would be maximum of $6,300. If there is an excess, then that might be taxed at the parents’ tax rate.
Thank you this is helpful! I thought I was doing it right. It’s not that her scholarships are in excess of the tution, its just that half of them are for room & board and if we want to be able to claim the AOTC we need to add it to her taxable income. Looks like I can’t finish her taxes until we do ours because this will put her income a little over the 6300 max and it will be taxed at our rate.
Thinking to next years FAFSA and wondering how it will affect financial aid??? Although she only gets the subsidized loans but her school gives her the grants for room and board, mmmm.
Yes, if the kiddie tax comes into play, you need to know the parent’s taxable income and amount of tax assessed before doing form 8615 as part of the student’s return.
Info from the 1098T winds up on D’s taxes and mine, pretty much the same as what @mommdc does. We moved a little more scholarship to taxable to D so I could claim more AOTC, in fact.
It’s complicated and in my case involved having two tax returns open at once and going back and forth with numbers to see what the best situation was. I’m not looking forward to it again this year but it’s a fair bit of $$ so I’ll do it.
To be clear, the only information from a 1098-T that actually appears anywhere on a tax return is the name and address of the school and the school’s federal ID number (all on form 8863, Education Credits). The dollar figures that appear on a 1098-T may be asked for by tax software, but those actual figures do not have a corresponding direct entry on any tax form.
Well my D’s school is very good about reporting on the 1098T exactly what the tuition and qualified fees were for the year, and the scholarships and grants she received in the year. They bill in July and Nov and we pay in Aug and Dec, all aid posts in Aug and Dec (10 days before the term starts).
So our 1098T is in fact correct as far as tuition and fees billed in 2016 and scholarships received in 2016.
For that reason I can use the 1098T info to help me enter numbers to claim the AOTC.
Some schools report billed amounts of both semesters and only one semester of aid, it just depends.
But both TT and Taxact seemed to have a way to enter information of expenses actually paid if they differ from the 1098T.
So for my D’s return in Turbotax (freedom edition is free for income under $33,000) I got the taxable amount of her scholarship/grants (used for room and board) entered in the following way:
Go through the interview, state that she is a student, full time, etc. and a dependent.
Then for credits and deductions, choose what to work on and click on 1098T.
Enter info from 1098T (if correct) for box 1 or 2, and box 5.
Then later when it asks if some of the scholarship was used for room and board, put the amount there, it then should treat it as taxable income.
How the FAFSA treated our AOTC and D’s taxable scholarship income:
If you claim the full $2,500 AOTC, $1,500 of it is the non refundable part.
When we imported our 2015 tax return into the FAFSA with the IRS retrieval tool, it listed the non refundable part of education credit on the FAFSA (it prefilled question 93a). That gets deducted from parent income.
Then my D had total income from W2 and taxable scholarships on her tax return, and it asks in question 44 d of FAFSA for ‘student’s college grant and scholarship aid included in AGI’, and we put the amount of her taxable scholarship. This also gets subtracted from her total income so the FAFSA only looked at her work income
We paid 1k for her books this year. I allocated 3k of the scholarship money to room and board, and that will leave 3k in tution we paid + the 1k in books = 4k for the AOTC. The 3k added to her income didn’t take her above the standard deduction so it didn’t add any additional taxes owed on her return. Thanks for the link OHmomof2 on allocating scholarships. I didn’t realize you could do it that way
A dependent student for FAFSA has an income deduction of $6,420 (for EFC formula calculation on 2017/18 FAFSA) plus there are deductions for federal, state, soc sec tax paid. That is income from working. Like said above, any taxable scholarship income reported in AGI would be subtracted from this in question 44d.
The 1098T helps me in claiming the AOTC. I can list box 2 and 5 amounts and book expenses in the Taxact education expenses interview, and list the scholarships used to pay nonqualified expenses, and it then calculates the AOTC I can claim.
This can work if the box 2 amount relates to amounts actually paid and covers qualified expenses from only one tax year. The problem with the 1098-T is that schools often report amounts billed (box 2) instead of payments received (box 1); the school has the option to do either, and what matters for tax credits is the amount actually paid (i.e. the payments received by the school). Also, the 1098-T may report amounts billed for academic periods that cover more than one tax year (if box 7 is checked), while payments made in other tax years do not count for tax credit purposes.
@SeeksKnowledge if her scholarship doesn’t specify that it can only be used for room and board, then you can include an amount in her income that maximizes your credit.
