1098-T tax implications when scholarship exceeds tuition by $5K - reporting requirements?

My son just received his college scholarship for the upcoming academic year, and I'm trying to figure out our tax situation. His scholarship amount is about $6,800 more than his qualified educational expenses (tuition, fees, books). I've got the 1098-T form that shows everything, and since he's still our dependent, I'm planning to include this on our family tax return. But here's my question - does he also need to file his own separate tax return even though this scholarship overage is his only income for the year? He hasn't had a job or earned anything else in 2024 that would normally require filing. I know the excess scholarship money is technically taxable, but I'm confused about WHO needs to report it when he's our dependent. Is this something I handle on our return, or does he need to file separately even with no other income? Thanks for any help you can offer!

0 coins

18 comments

Mateo Hernandez

•8M

The excess scholarship amount (the $6,800 over qualified expenses) is considered taxable income to your son, not to you as the parent, even though he's your dependent. This is because scholarships are considered the student's income, regardless of dependency status. Since this $6,800 exceeds the standard deduction threshold for dependents (which is currently $1,250 for unearned income), your son will need to file his own tax return to report this income. The IRS treats scholarship money used for non-qualified expenses (like room and board, travel, etc.) as taxable income to the student.

0 coins

Mateo Hernandez

•8M

The excess scholarship amount isn't reported on your return at all - it's only reported on your son's return. The scholarship excess should be reported on Line 1 of Form 1040 with "SCH" written next to it to identify it as taxable scholarship income. Even though your son is your dependent, certain types of income still belong to the dependent themselves - scholarship income is one of those types. The taxable portion of scholarships is considered the student's earned income for tax purposes, which is why it goes on Line 1 where wages would normally go.

0 coins

Aisha Khan

•8M

After dealing with this exact situation with my daughter last year, I found this amazing service called https://taxr.ai that literally saved me hours of frustration. Her university sent a confusing 1098-T where they included some expenses in Box 1 but others in Box 2, and I couldn't figure out the actual taxable amount. The taxr.ai tool scanned her 1098-T form and broke down exactly what portion of her scholarship was taxable. It even explained how to report it correctly on her tax return since she was still our dependent. The guidance was super specific to our situation with the scholarship exceeding her qualified expenses.

0 coins

Aisha Khan

•8M

It actually did calculate the tax owed based on the taxable scholarship amount. In our case, since my daughter had no other income, she only ended up owing about $700 on her $7,200 excess scholarship because of how the tax brackets worked out. It wasn't nearly as bad as we feared. The difference from regular tax software is that this focuses specifically on educational documents and scholarship situations. It analyzed her 1098-T in detail, which TurboTax couldn't do without me manually entering everything. It works for undergraduate and graduate scholarships - the tax rules are similar, but grad school often has more research stipends which get treated differently.

0 coins

Ethan Taylor

•8M

Wanted to follow up about using that taxr.ai site that was mentioned. I was worried about my son's $9k excess scholarship but after uploading his 1098-T, it clearly showed that some of what the university classified wasn't actually taxable! Turns out his required lab equipment (about $1,200) counted as qualified expenses that weren't included on the form. The tool generated a precise breakdown showing only about $7,800 was actually taxable and calculated his tax liability around $820. It even explained that since he had no other income, he wasn't subject to self-employment taxes that would normally apply to other types of income. Such a relief compared to the $2k+ we thought he might owe!

0 coins

Carmen Lopez

•8M

If you're struggling to get answers from the IRS about scholarship taxation (like I was), check out https://claimyr.com - they got me through to an actual IRS agent in under 45 minutes after I spent DAYS trying on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c My son had a similar situation with excess scholarship, but his school also gave him a stipend that had no W-2. I couldn't figure out if it should be reported differently than the scholarship excess. After getting nowhere with the IRS phone system, Claimyr connected me with an agent who confirmed the stipend should be reported as income with "SCH" just like the excess scholarship. Saved me from potentially filing incorrectly!

0 coins

Carmen Lopez

•8M

It's not a scheduling system. What they do is use technology to navigate through the IRS phone system and get in the queue for you. When they're about to connect with an agent, they call you and patch you through. So you don't wait on hold - they do the waiting part. I was extremely skeptical too - I thought it was going to be some sort of scam. But I was desperate after trying for days, and it actually worked exactly as described. The service navigated all those annoying IRS menu options, waited through the hold times (which were over 2 hours that day), and then called me when they had an agent ready. I was honestly shocked it worked.

0 coins

Andre Dupont

•8M

I need to eat my words about that Claimyr service. After posting my skeptical comment, I decided to try it because I was at my wit's end trying to reach the IRS about my son's scholarship situation. His university reported his teaching assistantship incorrectly on the 1098-T and I couldn't figure out how to handle it. It actually worked - I got connected to an IRS agent in about 35 minutes. The agent clarified that teaching assistantships should be reported as wages on a W-2, not as scholarship income, and that my son's university had made an error. This completely changed how we needed to file his return and saved us from a potential audit. I'm still shocked this service actually delivered what it promised.

0 coins

Zoe Papanikolaou

•8M

Don't forget that your son may qualify for education tax credits even though he has excess scholarship! My daughter was in this situation and we were able to claim the American Opportunity Credit based on the qualified expenses that weren't covered by tax-free portions of her scholarship. The key is properly allocating which part of the scholarship went to qualified expenses vs. non-qualified expenses. IRS Publication 970 has all the details, but basically you want to minimize taxable scholarship by first applying scholarship funds to non-qualified expenses (room & board) when possible.

0 coins

Zoe Papanikolaou

•8M

Yes, you generally can choose how to allocate scholarship funds between qualified expenses (tuition, fees, books) and non-qualified expenses (room, board, travel) for tax purposes. This isn't obvious to most people and can make a significant difference! For example, if tuition is $15,000 and room/board is $10,000, with a $20,000 scholarship, you could allocate $10,000 of the scholarship to room/board (making it taxable) and only $10,000 to tuition. This leaves $5,000 of paid qualified expenses that could qualify for education credits. This often results in a better overall tax situation than automatically applying scholarship to tuition first.

0 coins