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Scholarship treated as income

Forum|Forum|3 years ago
March 31, 2023
4 replies
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I give up!!! Countless hours trying to prevent Form 8863 from making the client's scholarship as taxable income. Client is working toward a doctorate, more than half time student, and qualifies in all ways to have a tax free scholarship. I have poured over Intuit's instructions for filling out Form 8863 with no help there. The main possibility for error is that in entering the information from Form 1098-T, I should adjust line 1 to include the scholarship number along with the amounts actually paid by the taxpayer. Is this the answer? If not, what is?

Another Former All Star

ProSeries Professional

This topic has been closed for replies.

Best answer by fredr

leave box box 1. and box 5 as reported on 1098t. then go down on 1098t work sheet to reconciliation of box 1 payments line b. put the actual tuition paid with scholarship and taxpayer money on this line and it takes care of your problem.

dkh

Level 15

Student Info Worksheet, Part V, Line 7 ?????

P

poolcleanerAuthor

Level 8

I had tried that and it told me a lot of other lines were incorrect. Putting the total of amounts paid by taxpayer and those in scholarships (line 5 of 1098-T) on Line 6 of Part V, at least the taxable income disappeared! Still no credit allowed but that may be better than paying taxes on the scholarship!

rbynaker

Level 13

1098-T forms are notoriously wrong. If the tuition that was paid by the scholarship is not included in box 1 (like it should be) you'll have to enter QHEE elsewhere (see dkh's instructions). I would have the client get a financial transcript from the school for all of 2022 and into 2023 (sometimes there are refunds and the rule on education credits is anything refunded before filing the return gets adjusted before you file, anything after you file is a potential credit recapture the following year.)

Some of the transcripts are so convoluted that I can only survive them by making a spreadsheet. Here's a charge, here's a refund, here's another charge, here's a prorate, here's a payment, here's a loan, here's a scholarship/grant, etc. etc.

P

poolcleanerAuthor

Level 8

Rick, this is the most organized family ever so I know exactly how much was paid and when including a payment in 2021 that was required in December 2021 but not included on the form. I had tried following the ProSeries instructions but that created a lot of contradictions. I'm about to live with the entry on Line 6 of Part V since it is a correct number but is not coming from the school and it does seem to remove the income issue. This is the end of the doctorate so other years have all shown a much higher number for payments than the number for scholarships so the issue did not arise.

T

TaxGuyBill

Level 15

Box 1 of the 1098-T is higher than Box 5?

Did you check the box on the Student sheet saying they are working towards a degree?

Is the taxpayer able to be claimed as a dependent?

P

poolcleanerAuthor

Level 8

Box 1 is lower than Box 5.

Definitely working toward a degree and is now Dr. Client.

Not a dependent.

Thanks, Bill.

T

TaxGuyBill

Level 15

@poolcleaner wrote:

Box 1 is lower than Box 5.

Definitely working toward a degree and is now Dr. Client.

If box 1 is correct (but as Rick said, you should check that), then the difference between Box 5 and Box 1 SHOULD be taxable. Or are you saying it is taxing ALL of Box 5?

Did you check the box on the Student worksheet that he is working towards a degree? And double check the general Info worksheet that you indicated that he can not be claimed as a dependent?

F

fredrAnswer

Level 5

leave box box 1. and box 5 as reported on 1098t. then go down on 1098t work sheet to reconciliation of box 1 payments line b. put the actual tuition paid with scholarship and taxpayer money on this line and it takes care of your problem.

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