scholarships

[taxbuddy]

I have a freshman in college that received a 1098T. The scholarship amount is 9,000 larger than the tuition amount. I have researched and depending on how you read it could be taxable or not. Some of the excess was used for books and supplies and some for lodging and food. I have read the IRS pub but if you have another place I could look I would appreciate it.

[Burke]

Get a transcript from the college. Do not rely on 1098-T. It may include scholarships granted for another tax year's tuition. You need to do some matching. Research this board, there have been tons of threads on this. Sometimes this will happen in the first year of school. Also, tuition billed is immaterial. Tuition paid is what you need and often not on the form at all.

[FEDUKE404]

Consider also

Get a transcript from the college. Do not rely on 1098-T. It may include scholarships granted for another tax year's tuition. You need to do some matching. Research this board, there have been tons of threads on this. Sometimes this will happen in the first year of school.

I agree, but it should be noted the student is a freshman so "carryovers" might not (yet) be an issue. If so, there would have to be freshman/fall and freshman/spring considerations for both the qualifying expenses AND the scholarships "paid" to show up on the 2015 Form 1098-T.

My guess is that if the scholarship is substantial there is indeed some taxable income rattling around out there. This income is most commonly generated when the scholarship covers room/board in addition to the usual "qualifying" expenses.

So. . .hie thyself to the bursar's office (or equivalent) !!

FE

[Burke]

And I agree with that. However, sometimes the scholarships are granted in Dec for the following spring tuition, and they will arbitrarily increase that figure on the 1098T. He may find that, depending on the student's individual situation and income, there may be taxable scholarships to be reported. I had one some years ago, whose parents were both deceased, and he got money from all sorts of different sources up front in the first year of school. And a chunk wound up being taxable.

[FEDUKE404]

Timing of payments

And I agree with that. However, sometimes the scholarships are granted in Dec for the following spring tuition, and they will arbitrarily increase that figure on the 1098T. He may find that, depending on the student's individual situation and income, there may be taxable scholarships to be reported. I had one some years ago, whose parents were both deceased, and he got money from all sorts of different sources up front in the first year of school. And a chunk wound up being taxable.

Yup. I also have client who went the whole nine yards (Coverdell, 529 plans, etc.) for the children, two of which received essentially full scholarships to include obviously taxable income. In their situations, the schools would send out the Forms 1098-T with the "billed" amounts (both semesters on first Form 1098-T) being correct, and if they were lucky the (spring) scholarship funds were credited by mid-February and included on the next year Form 1098-T. Wash/rinse/repeat. In year of graduation, student received a Form 1098-T with zero qualifying expenses but with (delayed) scholarship payments shown.

Side Issue: IF YOU KNOW --- I have new client who is getting most of college expenses (associate degree, day student) paid via GI bill. No one can give a clear answer as to whether there will even be a Form 1098-T issued in this situation. Another student is in college ROTC program, and (perhaps) that school will issue a Form 1098-T. Apparently the student could select that ROTC pay a) tuition/expenses or b) room/board. Student selected tuition/expenses option.

Your answers, to include guesses??

Guess we'll have to see if things improve with the 2016 rules in place for those (expletives deleted) Forms 1098-T .

FE

[Roland Slugg]

In your OP you asked for other sources you can read to learn more. Your TTB reference book is one such "other source," of course, as is any other tax reference book. You can also easily find discussions about the subject online. The IRS's Pub 970 and its Tax Topic 421, however, do cover the subject correctly, and I don't believe there is any ambiguity in either source. Thus, I don't know why you wrote:

...depending on how you read it could be taxable or not.

The excess is taxable. You are correct, though, that the excess can be reduced by books and required supplies and equipment, as long as those costs were paid for in the same year ... presumably in 2015.

I disagree with all the above posts in which others suggested you can exclude the excess scholarship if it applies to another year's tuition and fees. There is no such provision for that in the rules. If the scholarship covers tuition for part of 2016 as well as 2015, I'm sure you'll find that the tuition amount reported on form 1098-T also includes part of 2016 as well. The excess in your student's case is almost certainly an allowance for food and lodging, and those amounts are taxable. In fact if any portion of the scholarship is specifically earmarked for food/lodging, then that amount is taxable and may NOT be reduced by other required expenses ... i.e. books, supplies and equipment.

Finally, you didn't ask about this, but I will mention it: No tax deduction or credit may be taken for any tuition, fees, books, etc. offset by non-taxable scholarships. In your case this would appear to render 100% of the tuition amount ineligible for a tax credit or deduction.