Taxable College Scholarship

[Lion EA]

Am I understanding this correctly? Client graduated Yale in May 2021. Form 1098-T shows 0 Tuition and $33,949 in Scholarships/Grants. He also paid $600 for books/paper/printer. The $33,949 - 600 gets reported as wage income, ordinary income, subject to kiddie tax (Mom's tax rate is just 10%, luckily).

Mom is arguing that tuition is over $28,000/semester + off-campus rent + internet. Yale says Tuition was accrued December 2020. Living expenses don't net against Tuition anyway.

I think he's a lucky kid to walk away with a Yale diploma for less than $4,600 in taxes. Mom thinks her kid should be getting a refund and is telephoning me multiple times at 11:30 pm at night.

Next year, everyone's rates are going up 10%.

[WITAXLADY]

hmm - I would re read articles on expenses against scholarships - Well known speakers Mary and Dave Mellon would say add up all tuition and expenses and net against the Grants..

I even read that on the IRS website somewhere to back it up..

Just no time to find the cite  now..

 

[Lion EA]

Yes, for 2020 we had tuition to subtract and expenses, such as books and a computer. For 2021, he had only $600 for books and a printer. Tuition for spring semester 2021 was paid in December 2020. Then he graduated in May 2021.  No tuition reported by Yale for 2021. Mom nor son has any record of checks written, because 2021 tuition was covered -- per Yale -- in 2020. Form 1098-T contained a lot of details, but none that helped us. Mom is calling Yale on Thursday. 2021 tuition (reported in December 2020) was covered by the scholarship that was reported in 2021, so we're hoping for a loophole here. Son is now in the army, so a bit busy right now. (I still think the son is lucky!)

[TexTaxToo]

Colleges used to be able to report tuition in the year billed, but must now report it in the year paid.  Was the tuition actually paid in 2020?  How did that happen if the scholarship wasn't received until 2021?

Was any of the "scholarships/grants" actually emergency aid due to COVID? If so, it is not taxable and should not have been reported on the 1098-T, though that wasn't clear at the time.

https://www.irs.gov/newsroom/emergency-aid-granted-to-students-due-to-covid-is-not-taxable

 

[Lion EA]

As far as I can tell from the documentation the client's mother provided me from Yale, Yale recorded the tuition paid in 2020 but recorded the scholarship -- which probably paid tuition plus room & board plus fees -- in 2021.

I agree that the tuition should've remained outstanding until covered by the scholarship. However, if that happened, then I need to amend the student's 2020 returns.

Mother wants to take the draft to a friend who promised to find a lower tax liability. I'm all for everyone paying their lowest legal tax liability. But the former student is over 18 and in the military and very definitely an adult. Also, not easily reachable at his current station in CA. I think I need a signed consent statement from my client for me to provide his return draft to his mother or to his mother's friend, right? And, mother wants it emailed; that was a hard NO from me. But I do have both mother and son on my portal which I've been using for the son. Also, eSign. So the son has two copies of his return that he can forward to anyone he wants!

I told the mother to get the bursar's statement from Yale. And, highlighted the instructions on Form 1098-T where Yale explains in great detail how to access 2021 transactions online. Mother has done neither, but sent an email to Yale asking them a question. And, talked to her friend who knows how to reduce taxes.

A recessed light is blinking which can trigger a migraine, so I have my overhead lights off. I'm not climbing up a ladder to change a bulb until Hubby returns from NYC to hold the ladder.

And, a dozen clients are emailing me about their unfinished returns. Spending an entire morning just on explanations for this client and his mother (both sets of returns were done and explained a day ago) was time I should've spent on tax preparation for other clients.

Thank you, everyone, for my rant. I needed to vent. Off to contact another couple of clients to tell them -- sorry, but November.

 

[Margaret CPA in OH]

Whew!  Take a few deep breaths, look at some beautiful fall leaves, and remember to care for yourself and family first.  No client is worth this level of angst, in my opinion.

[Lee B]

I would have trouble sleeping at night if this was my client.

I have a few mildly annoying clients, but nothing like this.  

[Lion EA]

I was awake most of last night !!

[Lion EA]

Mom's latest to me: "Xxxx will state what was covered for 2021 tuition and what his tax burden is for the Yale income. He will sign. You fill in the numbers he provides. Thank you"  

[BulldogTom]

51 minutes ago, Lion EA said:

Mom's latest to me: "Xxxx will state what was covered for 2021 tuition and what his tax burden is for the Yale income. He will sign. You fill in the numbers he provides. Thank you"  

Your reply to mom should be - "Here are your documents.   Sorry I could not be of assistance.  I am sure XXXX or Turbo Tax can complete the forms for you" and then move on to the next return.

No one tells me what number to put on a tax form that I sign.   

Tom
Longview, TX

[Lion EA]

I was going to send "Your needs no longer fit our business model" on Tuesday, but they moved up the time frame on themselves!

[Jim Oh Bkkr]

If I've learned anything from getting transcripts from bursar's offices, the colleges, (as I suspected), had all the information to "properly" fill out 1098's from day one.  To date, I have only seen one that was properly completed.

 

FWIW Lion, I probably would've mailed the kids documents to CA, absent adequate documentation to deal with the mother!

[Lion EA]

Oh, I uploaded the kid's stuff to his account on my portal. Mom picked up hers (card table in my garage for contactless pick-up). And, mom paid me the little bit I charge for both!!