Do I owe taxes because of my Scholarship payments? Confused about how this works

So wait, if my scholarship is $25k but my tuition is only $18k, does that mean the extra $7k is taxable even if I use it for my dorm? And do I need any special forms or just the 1098-T from my school?

Yes, that's exactly right. If your scholarship is $25k and tuition is $18k, the remaining $7k would be taxable if used for your dorm, meal plan, or other non-qualified expenses. The IRS considers those living expenses, not direct educational expenses. You'll primarily need your 1098-T from your school, which shows your tuition and scholarship amounts. Your school should have issued this to you. No special forms are needed beyond that - you'll just report the scholarship on your tax return and calculate the taxable portion. Most tax software will walk you through this process if you indicate you're a student with scholarship income.

How does it actually work with the scholarship breakdown? My school just gives me one total number on my 1098-T and doesn't specify what's for tuition vs housing.

Sounds suspiciously like an ad... Does it actually work for complicated situations like if you have multiple scholarships from different sources and some are marked "for housing only"?

The tool asks you to separate out your expenses based on categories - tuition, required fees, books, and then housing/food/personal expenses. Even if your 1098-T just shows one lump sum, you can manually enter what portion went to each category based on your school billing statements. The system then calculates the taxable vs non-taxable portions automatically. For complicated situations with multiple scholarships from different sources, yes it handles that too. You can enter each scholarship separately and specify what each one was designated for. If you have scholarships marked specifically "for housing only," the system will correctly mark those as taxable since housing isn't a qualified education expense.

How does this actually work? Like do they just call the IRS for you or something? I've been on hold with them for literally hours before giving up.

Yeah right, nobody gets through to the IRS that fast. Last time I called I waited 2.5 hours and then got disconnected. If this actually worked, everyone would be using it.

They basically use a system that navigates the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call connecting you directly to that agent. So yes, they call for you and handle the hold time - you only get on the phone when there's actually an IRS representative ready to talk. It genuinely works - the technology navigates the phone system and holds your place in line. I was skeptical too until I tried it. The longest part was just entering my information at the beginning. Then I just went about my day until I got the call that an agent was on the line. Completely different experience from the frustration of waiting on hold yourself for hours.

Can you explain more about those education tax credits? I've heard of them but don't really understand how they work or if I'd qualify.

The American Opportunity Credit is the bigger one - worth up to $2,500, and you can claim it for the first 4 years of college. You get 100% of the first $2,000 you spend on qualified education expenses, and 25% of the next $2,000. The best part is that it's partially refundable - meaning you can get up to $1,000 back even if you don't owe any taxes. The Lifetime Learning Credit is worth up to $2,000 (20% of the first $10,000 in qualified expenses), but it's not refundable. However, you can use it for any year of education, including graduate school or professional courses. You generally qualify if you're paying for college expenses and your income isn't too high. For 2024, the AOTC starts phasing out at $80,000 for single filers, and the LLC at $59,000. Both have their own requirements, but most traditional college students will qualify for at least one of them.

You need to look at your student account statement from your school - it should show how much you paid for tuition and fees separately from housing, meal plan, etc. Compare that to your total scholarship amount. If your scholarship exceeds the tuition/fees/required books, then the excess is taxable. Your school's financial aid office can also help break this down if the statements aren't clear.