1098-T for Grad Studentn- Taxable Scholarship???

[Steve Stang]

I know that there have been lots of threads on 1098-T. I've read through most of them and haven't found this situation.

I have a couple (MFJ) and the wife attended a grad school course. She received a 1099-Misc in the amount of $4,725 (box 3 other income) from a non-profit - a scholarship.

She attended Harvard Extension Continuing Ed in Cambridge for one course.

She received a 1098-T from Harvard indicating Box 2 (amounts billed) for $2,250 and Box 5 (scholarships) for $4,725. Box 9 is checked for grad student.

She is long past completing her undergrad studies so there is no question here about AOC (not looking to claim it). Based on the answers on Form 8863, she would only be eligible for the Lifetime Learning Credit.

The couple has W2 income of $149k. Their AGI will likely be around $150k.

Assuming the 1098-T is correct (let's say the amount billed is the amount paid), there is a difference that I think is taxable income. My software (Drake) seems to show that she is not eligible for the LLC.

I've done these before for others and simply made an adjustment adding the difference to income. But I've never had to deal with a 1099-Misc at the same time as the 1098-T.

So, do I simply add the 1099-Misc onto 1040, line 21 as other income and be done with it? Seems too simple.

Or do I add the difference between the cost of the course and the scholarship as income only?

Or something else?

I've asked the TP to provide something to show the actual cost of the course and amounts paid for it plus books.

Thanks.

[mastertaxguy]

1098-t vs. Student account statement

1. You may want to ask the TP/SP to obtain (usually they are on-line) a student account statement from the University.
2. Such a statement may show that was reported as scholarships and grants was in whole or in part loans or other non-taxable payments.
3. The statement may also show expenditures for books and materials, required fees, and other things not reflected on the 1098-T.
4. Then you will be in a better position to determine what amount, if any, is taxable.
5. Was the graduate program work related?

[Steve Stang]

The client's employer encouraged her program participation. So I'd say it was work-related.

I have the statement indicating the total cost of the program, books and registration. The scholarship amount is higher than the costs.

What's confusing me is the presence of the 1099-MISC from the scholarship granting source. The amount on the 1099-MISC matches the amount on Box 5 of the 1098-T. I've never had a case where I've received both a 1099 and 1098.

In my software, I can input 1099-MISC and if I match up block for block I believe that the TP will incorrectly be adding the total amount as income. And if I input the difference as income I;m concerned that the IRS may pick that difference up and flag it.

There is no question in my mind that the difference is taxable as income.

[mastertaxguy]

1098-t TAXABLE SCHOLARSHIP

1. I suppose, depending on your software, that you would enter the taxable scholarship on line 7. Some software (I have been told) will carry that over from some sort of education credit worksheet or something like that.
2. Then, I suppose you would enter the 1099-MISC on line 21, and then enter something either as an adjustment or also a negative amount on line 21 to zero that out, with notation "taxable scholarship line 7" or something like that.
3. Our office has seen more of these the last few years (taxable scholarships). Some of the institutions issue the 1099 also. Maybe they are trying to establish that the student/taxpayer is an independent contractor for some sort of insurance purpose.

[mooretax]

other income on line 21

1) report 1099-MISC other income on line 21.

2) cannot claim lifetime learning credit because
married joint income is 128,000 or more.

3) box 5 is greater than box 2
box 2 is paid by box 5 scholarship/grant
cannot claim the lifetime learning credit


See page 22 of 2014 publication 970

http://www.irs.gov/pub/irs-pdf/p970.pdf

[Steve Stang]

Thanks. I didn't think she was eligible for the LLC. As noted, the software ruled that out. (If she was going to be eligible for anything it would have only been the LLC, not the AOC anyway because of grad school).

I figured that the 1099-MISC should be on Line 21 as Other.

I had put in the net amount only as other income. I'm going to revise my data input to show the 1099-MISC as is and then another worksheet entry to deduct the course cost so that she is only taxed on the net difference.

[mooretax]

taxable income on line 21

She was taxed on Other income line 21.
She can use the taxable income for education and non-education expenses.
Why do you have to use the worksheet?

[Steve Stang]

The worksheet is internal for the data entry into the software. I'm using it to net out the non-taxable scholarship against the total 1099-MISC so that she is taxed on the net result. I want the 1099-MISC to be listed so that it matches up with whatever the IRS receives directly from the scholarship source.