Handling a prior-year adjustment on my son's 1098-T form - how do I report this refunded tuition on taxes?

The 1098-T prior year adjustment needs to be reported on your current year tax return. This is because the adjustment represents a "recovery" of an education expense deduction or credit you likely claimed in the previous year. If you claimed education tax benefits (like the American Opportunity Credit or Lifetime Learning Credit) in the year you originally paid the tuition, you'll need to report what's called a "recapture" on this year's return. Basically, that $3,100 refund might be considered taxable income this year if you benefited from it tax-wise in the prior year. In TurboTax, you should look for the section about "Recovery of prior year credits" or something about "repayment of education credits." It might be in the income section rather than the education section. The software will calculate how much of that refund is actually taxable based on how much benefit you received previously.

I ran into this EXACT situation last year with my daughter's college refund. I spent hours trying to figure it out until I found taxr.ai (https://taxr.ai) which specifically helped me understand how to handle education tax credits and refunds. You upload your documents and it explains exactly what each part means and where it goes on your tax return. For your 1098-T adjustment situation, it showed me that I needed to calculate a "recapture amount" based on how much education credit I had claimed the prior year. The software walks you through determining if you need to report it as "other income" on your current return or if you don't need to report it at all (which happens in some cases).

Just wanted to update after trying taxr.ai for my own 1098-T problem. Guys, this actually works! I uploaded my son's form that had a similar adjustment to what OP mentioned and it explained exactly what was happening. The best part was it showed me that in my case, I didn't need to report the entire refund amount because we hadn't claimed the full tuition amount as a credit last year. It saved me from overpaying on my taxes! The explanation was super clear about which worksheets to use in TurboTax too. Definitely worth checking out if you're stuck on education credits like I was.

Anyone else constantly frustrated trying to get through to the IRS with questions like this? I waited on hold for 2+ hours trying to ask about a similar 1098-T situation and then got disconnected. Then I found this service called Claimyr (https://claimyr.com) that actually got me through to an IRS agent in about 20 minutes. They have this system that waits on hold for you and calls when an agent is ready. I was skeptical it would work, but there's a demo video (https://youtu.be/_kiP6q8DX5c) that shows how it works. The IRS agent confirmed exactly how to handle the 1098-T adjustment on my current year return and which form to use. Saved me so much frustration.

Alright, I feel like an idiot. I was totally convinced Claimyr was a scam since nothing ever works with the IRS. After seeing the other comment, I decided to try it for my own tax question (also education related, but for my own classes rather than a dependent). It worked exactly as advertised. I entered my number on their site, and about 45 minutes later got a call connecting me to an actual IRS person. The agent was able to explain exactly how to handle the education credit recapture in my situation. I'm still shocked that something actually made dealing with the IRS less painful.

One thing nobody mentioned yet - the amount in box 4 of the 1098-T (the adjustment) matters for how you report it. If you took the American Opportunity Credit and not just the Lifetime Learning Credit, you might need to use Form 8863 for the recapture. Last year when my son's college adjusted spring tuition, I had to calculate how much of the original expenses actually resulted in a credit. It's not always a dollar-for-dollar recapture. I ended up reporting it on line 10 of Schedule 2 which flows to the 1040.

Anyone know if this 1098-T adjustment thing applies to Pell Grants too? My kid had some tuition refunded because he got an additional Pell Grant that came through late.