Scholarship dollars

M & M,
Not sure but I think someone said that you get a form but it does not have to be reported to IRS?????
Someone help us out here.....

Sorry to have to break this news to you ...

This is directly from a 1098-T form received by our youngin' this year:

quote:

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A college or university that received qualified tuition and related expenses on your behalf is required to file Form 1098-T ... with the Internal Revenue Service. A copy of Form 1098-T must be furnished to you. The information being reported to the IRS verifies your enrollment with regard to certain eligibility criteria for the Hope Tax Credit, the Lifetime Learning Tax Credit and Higher Education Tuition and Fees Deduction. However, the enrollment information by itself does not establish eligibility for either credit or deduction.

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The 1098-T form shows the payments received for "qualified tuition and related expenses", as well as the scholarship and grant moneys given to the student. These numbers CAN (and in AJ's case, do) reflect money received for the academic period from Jan-Mar 2004 ... as well as tuition and fees for that period. Unfortunately, it skews the numbers incorrectly, and in AJ's case, overstated the scholarship money quite a bit (actually ... 25% by adding an extra quarter's worth of scholly money to the total).

But here is another (sad) note: If a student files a tax return on their scholarship money AND if he is still claimed as a dependent ... and here is the annoying fact ... then he cannot deduct his tuition and fees to offset his scholarship. Even if a student were able to deduct expenses (i.e., not claimed as a dependent) books and living expenses are NOT considered deductible expenses.

Now, the real question ... does he even bother to file a tax return on his scholarship money? Some do, some don't ... it is a personal decision.

Highlandermom- I'm confused about your second paragraph (cannot deduct tuition if a dependant)- where did this info come from?

stickwatcher ...

The student, if filing a tax return to declare his scholarship/grant money, cannot deduct his own "qualified" tuition and fees on his tax return if he is claimed as a dependent by his parents ... and that is from all the different instruction manuals that accompany the different tax filing forms.

In the fair state of the Left Coast, the parents (or whomever) don't even have to claim him as a dependent ... if he is "able" to be claimed by someone else as a dependent, he can not deduct his own educational expenses from his scholarship money.

It is a no-win situation for students who don't qualify for the various higher education tax credits ...

I may have read it wrong, but I don't think so. Check it out on the IRS website ...

I have been researching this this week and your answer is contained in this IRS Publication.
IRS publication

I do believe you have a misinterpretation. Check out publication 520 (Scholarships and Grants)and check with an accountant.

My tax accountant told me that a scholarship is tax free if it is used for college tution and fees. If the scholarship is used for room and board, books, etc...it is taxable. Does that correct?

stickwatcher ...

There are several different IRS publications that say similar things, but the bottom line ... when you get to line 26 on form 1040 (or line 19 on form 1040A) ... you will be directed to page 32 (or 31/32 for 1040A) in the instructions manual that identifies ALL of the factors that need to be met for the expenses to qualify as deductible. VERY SPECIFICALLY ... it states that you can take this deduction only if all of the following (list of factors) apply ... one of which is that YOU CANNOT BE CLAIMED AS A DEPENDENT ON SOMEONE'S 2003 TAX RETURN.

I don't know how else to interpret it. And we have talked with our tax accountant.

I guess the question remains ... can the parents take the qualified educational expenses as a deduction? And would that require that they report the scholarship money as income for them? That would be a question for the tax man ... heh?

I see where our confusion lies. You are talking of DEDUCTING (or not being able to) tuition expenses AFTER an income is reported (if a dependant). This is true. But- if you recieve sc holarship monies for tuition and fees- you DON'T report that as INCOME in the first place , because that is non-taxable money.We also can't claim the hope or lifetime credits because we don't pay tuition.You can't take deductions for things you don't pay for in the first place. Let's say your ahlete recieves 7,000 in schoalrship money, and tuition and fees are 5,000, he only needs to claim 3,000 as income.There is a worksheet to be attached.

Stickwatcher's got it, except for the math, maybe? (7000 - 5000 = 3000) Here is another link to IRS that might help explain scholarships and whether they are or are not income. The deductions, as SW says, are another issue that comes up if you still have scholarship monies that are considered as income. Notice that a scholarship that pays for books required for courses towards a degree is also not income.

IRS Frequently Asked Questions

A REALLY blonde math moment