Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

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Valued Pioneer
Posts: 3
Registered: ‎01-09-2016

question about 1098-T , taxable scholarship

Dependent child in college, has $13,000 in scholarships (box 5 of 1098-T). The qualified expenses (box 2) is $8000 which is assume is tuition and fees.

 

I could just subtract box 2 from box 5 to get the taxable part of his scholarship ($5000) which I file on his return.

 

But now I'm confused.

It's not listed on the 1098-T, but $10,000 of the $13,000 in his scholarships are for his housing. The remaining $3000 is for his tuition.

 

Do i then put down on his taxes the $10,000 as his income and then put on my taxes the $5000 I had to pay out of pocket for tuition/fees so i can get the tuition credit on my taxes? or just go by what the 1098-T says?

Also another question,

Is the taxable part of his scholarship considered earned or unearned income?
His scholarship is for housing with the requirement that he remain on campus, and also that he has to give campus tours and help out with some orientation events.

 

Thank you for your help!

 

P.S. I assume that the total in box 2 is all the tuition /fees charges billed in 2017 not the amounts that I paid in 2017. Box 1 is blank. Does the IRS want the totals billed or the totals paid for tuition/fees in 2017?

 

 

 

 

Highlighted
Council Member
Posts: 516
Registered: ‎04-06-2016

Re: question about 1098-T , taxable scholarship

I'm going to answer in blue text below...

Karen 


@byrwill wrote:

Dependent child in college, has $13,000 in scholarships (box 5 of 1098-T). The qualified expenses (box 2) is $8000 which is assume is tuition and fees.

 

I could just subtract box 2 from box 5 to get the taxable part of his scholarship ($5000) which I file on his return.

 

But now I'm confused.

It's not listed on the 1098-T, but $10,000 of the $13,000 in his scholarships are for his housing. The remaining $3000 is for his tuition. Does the $10,000 HAVE to be used for housing related expenses, or do they have the option of being used for tuition and fees?  If they have to be used for housing, then you can't do what you mention above.  Only $3000 of the scholarships would be for eligible expenses and he'd have to pay taxes on the $10,000 of the scholarship that has to be used for housing.

 

Do i then put down on his taxes the $10,000 as his income and then put on my taxes the $5000 I had to pay out of pocket for tuition/fees so i can get the tuition credit on my taxes? or just go by what the 1098-T says? Yes, this will generally end up being more advantageous than not taking the credit and including less as income on your son's return.  (Although it doesn't appear that's really an option in your case.)

Also another question,

Is the taxable part of his scholarship considered earned or unearned income? Taxable scholarship income will be reported as non-W2 wage income on 1040 Line 7-- it'll have a note on the line next to it that says SCH and the amount of taxable scholarship income. However, it's considered unearned income for the purposes of the "kiddie tax" per the instructions for form 8615: https://www.irs.gov/pub/irs-pdf/i8615.pdf .
His scholarship is for housing with the requirement that he remain on campus, and also that he has to give campus tours and help out with some orientation events.

 

Thank you for your help!

 

P.S. I assume that the total in box 2 is all the tuition /fees charges billed in 2017 not the amounts that I paid in 2017. Box 1 is blank. Does the IRS want the totals billed or the totals paid for tuition/fees in 2017? This is correct. Box 2 is the amount billed in 2016-- and should be listed as such when you enter the 1098-T information. There should also be a box on that same screen that asks for the amount PAID for tuition and fees in 2017-- in this box you'd put the totals PAID for tuition and fees in 2017, even if they were for Spring semester 2018. The amount actually PAID in 2017 is what are considered eligible expenses in 2017 and is the number the IRS really cares about.


Karen

 

 

 

 


 

Valued Pioneer
Posts: 3
Registered: ‎01-09-2016

Re: question about 1098-T , taxable scholarship

Thank you so much!!!!

 

One more question please,

I am sitting here with the list of financial transactions from the college now. I see that payment of 2017 tuition was made on 12/29/16, a d payment of 2018 tuition was made on 8/1/17 and 1/1/18. Should i only report what i paid for tuition on 8/1/17 for my (not my child's) 2017 taxes? Does the H&R block online filing have that option?

 

Thank you again

Valued Pioneer
Posts: 3
Registered: ‎01-09-2016

Re: question about 1098-T , taxable scholarship

note added: the amounts i paid don't add up to the amount billed in 2017 because of the payment made on 1/1/18, should i include the 1/1/18 payment so it makes sense?

Council Member
Posts: 516
Registered: ‎04-06-2016

Re: question about 1098-T , taxable scholarship

You'd only include the amount you paid on 8/1/17.  The amount you paid on 12/29/16 should have been claimed/included in 2016 and the amount you paid on 1/1/18 will be claimed/included in 2018.  Only the 8/1/17 amount was actually paid in 2017 so it will be the only payment that can be used for figuring qualified expenses for 2017.  As far as scholarships, they have to be reported in the year they are received which should be 2017 if they're reported on the 2017 1098-T.  

This gets confusing because colleges can choose to report the actual amount paid by each student (box 1) or the amount they billed (box 2). I think it's probably easier for them to report the amount billed because it's not likely to be as variable as the amount each student paid during the year (especially if they bill every full time student the same amount/semester).  Unfortunately this makes it much harder for students and their parents to report this information on their tax returns. 

 

When you enter your 1098-T information in the online program it'll ask you if there's a number in box 1 or box 2. When you select box 2, it'll ask for the amount in the box and then ask if the amount in that box "is the amount you entered the full tuition paid to _____ school in 2017? " You'd answer NO, because the amount you paid is not the same as in that box.  This will open a box that allows you to enter the Tuition and fees paid in 2017.  This is where you'd enter the amount that was actually paid during 2017-- make sure you read the note below the box. This amount should include all amounts paid for TUITION and FEES only by you, someone else, scholarships, fellowships, and student loans during 2017.  Assuming you paid half of the amount billed in 2017 in August, you'd enter $4000 in this box.

 

Since the maximum American Opportunity Credit ($2500) is available if you have $4000 worth of qualified expenses, ideally you'd want to have $4000 of qualified expenses made up of tuition and fees + books (paid for in 2017) to claim toward it.  The AOC is 100% of the first $2000 + 25% of the next $2000. So at the very least you'd want to try to get $2000 of qualified expenses to be able to claim toward the credit.

 

That said, when deciding what to put in the box for scholarship value to be taxed, you'll definitely have to include the $10000 that was used for housing. However if you enter $10000, it will leave $3000 of the scholarship to be used toward the $4000 eligible tuition and fees expenses that could otherwise be used for the credit. Doing this will leave you only $1000 + any book expenses paid in 2017 to be claimed for the credit.  If the $3000 has the flexibility to be used for non-qualified expenses (non-tuition and fees expenses), and your son had other living expenses that could be covered by some part or all of that $3000, you could increase your credit by having your son claim more of the scholarship as income.  Be careful to verify that the $3000 isn't required to be used for qualified expenses before having your son claim it as income. 

 

You may already be familiar with it, but there's a lot of good info and examples in Pub 970: https://www.irs.gov/pub/irs-pdf/p970.pdf .

 

Karen

 


@byrwill wrote:

Thank you so much!!!!

 

One more question please,

I am sitting here with the list of financial transactions from the college now. I see that payment of 2017 tuition was made on 12/29/16, a d payment of 2018 tuition was made on 8/1/17 and 1/1/18. Should i only report what i paid for tuition on 8/1/17 for my (not my child's) 2017 taxes? Does the H&R block online filing have that option?

 

Thank you again


 

Council Member
Posts: 516
Registered: ‎04-06-2016

Re: question about 1098-T , taxable scholarship

I think this may be clear from my previous post, but No, don't enter those for 2017. The IRS is used to having the actual amount paid by students not match the amount in box 2 of 1098-T. It'll expect to see the payment made in 2018 reported in 2018.

 

Karen


@byrwill wrote:

note added: the amounts i paid don't add up to the amount billed in 2017 because of the payment made on 1/1/18, should i include the 1/1/18 payment so it makes sense?