How to handle 1098-T adjustments from a prior year on current tax return?

The amount in Box 4 of your 1098-T represents adjustments the school made to amounts that were reported in a previous tax year. This typically happens when there are billing corrections, refunds, or other adjustments after the original 1098-T was issued for that earlier year. Since Box 4 shows $2,016.12, this means the school reduced previously reported payments from a prior year by that amount. If you claimed education credits or deductions in that previous year (2021) based on those expenses, you might need to recalculate what you were actually eligible for. However, since you mentioned your scholarships exceeded your qualified expenses in 2021 and you didn't claim education credits, you might not need to amend your previous return. The adjustment wouldn't affect your tax situation if you weren't benefiting from those expenses tax-wise.

After dealing with a similar 1098-T situation, I found an amazing tool that helped me sort through all the confusion. I tried https://taxr.ai when I got a weird 1098-T with adjustments from prior years and it saved me so much stress. I uploaded my form and it explained exactly what each box meant for my situation and what I needed to do. The best part was how it checked if I needed to amend my previous returns or if I could just handle everything on my current year taxes. It gave me personalized answers instead of generic advice that didn't apply to my situation.

Just wanted to update that I tried https://taxr.ai after my skeptical post above. It was actually really helpful with my 1098-T situation! I uploaded my forms and it showed me exactly what I needed to do with those Box 4 adjustments. Turns out I didn't need to amend my previous return since the adjustments didn't affect my education credits (similar to the original poster's situation). The tool explained that since my qualified expenses still exceeded my scholarships even after the adjustment, my American Opportunity Credit calculation wouldn't change. Saved me from paying a CPA just to ask this one question. Definitely worth checking out if you're confused about education tax forms.

If you're getting nowhere with your 1098-T questions, you might want to try https://claimyr.com to get direct help from the IRS. I was completely stuck trying to figure out a similar education credit situation with prior year adjustments, and I couldn't get through to anyone at the IRS for weeks. I was super frustrated until I found Claimyr - they got me connected to an actual IRS agent in about 15 minutes instead of waiting on hold for hours. The agent walked me through exactly how to handle the Box 4 adjustment based on my specific tax situation. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c Honestly changed my perspective on dealing with the IRS - I actually got clear answers from a real person!

I need to eat my words from my previous comment. After waiting on hold with the IRS for 3+ hours about my daughter's 1098-T form with similar adjustments from prior years, I got desperate and tried the Claimyr service. Got a call back in about 25 minutes with an actual IRS representative on the line. The agent explained that since we had claimed the American Opportunity Credit in the prior year, we needed to recalculate based on the adjustment amount in Box 4. In our case, it reduced our eligible expenses enough that we needed to file an amended return. Honestly surprised this service actually worked. Saved me from wasting an entire day on hold, and the IRS agent was surprisingly helpful once I actually got to talk to someone.

Just to add some clarity on the 1098-T Box 4 issue - the reason schools make these adjustments is often because of timing differences between when you paid and when they applied payments to your account. Here's a real example: my son paid his spring 2023 tuition in December 2022. The school initially reported it on the 2022 1098-T. Then, in 2023, they realized they should have counted it for 2023 instead, so they made an "adjustment to a prior year" by putting that amount in Box 4 of his 2023 form. This means they're essentially telling you "we reported this amount last year, but we shouldn't have - it belongs to this year instead.

Reading the comments, I'm still confused about one thing. My son's 1098-T shows a big amount in Box 4 ($3270) but nothing in Box 1. If they adjusted a prior year payment, shouldn't that money show up somewhere on this year's form?

Based on what you've described, you're in a pretty straightforward situation. Since you didn't claim any education credits in 2021 and your scholarships exceeded your qualified expenses that year, the Box 4 adjustment of $2,016.12 likely won't require you to amend your previous return. Here's what I'd recommend: First, check your 2021 1098-T to see if that $2,016.12 was included in Box 1 (payments received) that year. If it was, and you didn't use it for education credits because your scholarships already covered everything, then removing it now doesn't change your 2021 tax situation. For your 2022 return, you only need to worry about the $1,425 in Box 5. Since you dropped the classes and presumably didn't have qualifying expenses to offset this scholarship amount, that $1,425 would be taxable income for 2022. The Box 4 adjustment is just the school's way of saying "we reported this payment in the wrong year previously" - but if you weren't getting tax benefits from it anyway, the correction doesn't hurt you.