Quick Education Credit Question

[MargaretMort]

Client has child attending college. The 1098-T shows payment received of $1770.58 and Scholarships or grants of $2388. Even adding in Books, etc., the costs don't equal the scholarship. Does that mean they have $400 or so taxable income instead of the $134 credit they think they have?

As always, thanks for all your help. MM

[Catherine]

Client has child attending college. The 1098-T shows payment received of $1770.58 and Scholarships or grants of $2388. Even adding in Books, etc., the costs don't equal the scholarship. Does that mean they have $400 or so taxable income instead of the $134 credit they think they have?

As always, thanks for all your help. MM

1098-T's frequently nothing but garbage info -- they miss payments made, they "net" amounts out instead of reporting in full (but only inconsistently), they mis-apply which year (school year versus calendar year), and then they can get just plain weird from there. Get from the client a list of what they paid and any letters about scholarships - sometimes the bursar's office can give a statement of account that is close to reality (but won't include books). Add 'em up yourself. Chances are good that your client paid at least the amount shown out-of-pocket, and that the scholarship/grant amount was applied outside what your clients paid.

Catherine

[Hahn1040]

Often scholarships will cover more than qualified tuition and fees. Room and board are not qualified education expenses for determining tax-free scholarships.

IF the scholarship is greater than the tuition and fees, then the excess is added to THE STUDENT's income (line 7). In many cases the student had a part-time job and made well under the standard deduction, so adding some to line 7 does not cause the student to owe.

I did have a case a couple of years ago where a young woman had a FULL scholarship to Columbia. She had a summer job that was already greater than her standard deduction, So she did end up paying some tax- The mother was quite put out that the child owed tax.

My thought was, "Goodness- she is going to Columbia on a free ride! SO you pay a couple hundred dollars of tax!" I'm sure she worked very hard and is very deserving- but still free is free!

Pub 970 has a very good chart which shows what expenses qualifies as tax free.