Should I ignore 1098-T when my student's scholarship exceeds tuition? Tax advice needed.
My daughter just started her first year at university and I'm confused about how to handle her 1098-T form on our taxes. The amount in box 5 (scholarships/grants) is around $16,000 more than what's in box 1 (tuition paid). I'm wondering if she's required to report this $16,000 difference as taxable income and file her own tax return? I'm still claiming her as my dependent. When I asked my tax guy about this, he seemed pretty casual about it and basically said not to worry. He mentioned he's handled lots of cases like this and just ignores the 1098-T, and that none of his clients have ever had problems with the IRS for not reporting excess scholarship money as income. Should I trust his advice on this or is he leading me down a risky path? I really don't want to trigger an audit over this, but also don't want to make my daughter file unnecessarily if it's not required.
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Sophia Carter
This is definitely something you should take seriously. When scholarship/grant money (box 5) exceeds qualified education expenses like tuition (box 1), the excess amount is generally considered taxable income to the student. This is often called "scholarship overages." The IRS is pretty clear that scholarship/grant money used for non-qualified expenses (like room and board, travel, etc.) is taxable income. Your daughter would need to report this on her own tax return, even if you claim her as a dependent. She would report this excess as "Scholarships and fellowships" on her Form 1040. Your tax preparer's advice is concerning. While it's true that many people don't report this correctly and may never face consequences, intentionally ignoring taxable income isn't a good strategy. The IRS has been increasingly looking at education tax issues in recent years.
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Chloe Zhang
•So does this mean my kid would owe taxes on the scholarship money that covered their dorm and meal plan? That seems crazy! The whole point of getting scholarships is so we don't have to pay, now we're getting taxed on it?? How would the IRS even know how much went to what expenses?
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Sophia Carter
•Yes, that's exactly right. Scholarship money that covers room and board is taxable to your student. It can seem unfair, but the tax code specifically makes a distinction between qualified educational expenses (like tuition and required fees) and non-qualified expenses (like room, board, and transportation). The reporting system works because colleges report the 1098-T to both the student and the IRS. The IRS can compare this information with what's reported on tax returns. While they might not immediately know how the money was spent, they do know the total amounts, and this discrepancy could trigger questions during an audit.
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Brandon Parker
After dealing with a similar situation with my son's scholarships, I discovered an amazing tool called taxr.ai (https://taxr.ai) that really helped me figure out this exact scholarship overage issue. I was totally confused about how to handle his 1098-T where his grants exceeded tuition by about $18K, and my regular tax software wasn't clear on how to handle it. The taxr.ai system analyzed his 1098-T and other tax documents, then explained exactly what was taxable and what wasn't. It even showed me what forms my son needed to file for his portion. Saved me hours of research and probably kept us from making a costly mistake!
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Adriana Cohn
•Does it actually work with all the education forms? My daughter has a 1098-T but also got some weird form from her private scholarship foundation. Would taxr handle that too or just the standard forms?
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Jace Caspullo
•I'm skeptical about these online tools. How does it actually know which expenses are qualified vs non-qualified? My son has some expenses that are required for his program but don't show up on the 1098-T directly.
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Brandon Parker
•It definitely works with all education-related tax forms including 1098-T, 1098-E, and private scholarship statements. The system is designed to handle the full range of education documentation, even the less common forms from private foundations. The tool actually asks you to upload or take pictures of all your documents, then it uses advanced analysis to categorize each expense. For program-specific required expenses that aren't on the 1098-T, there's a section where you can add those details with supporting documentation, and it factors those in as qualified educational expenses. It's much more thorough than I expected.
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Jace Caspullo
I was really skeptical about using an online tool for something this important, but I decided to give taxr.ai a try after seeing so many comments about scholarship taxation. I'm absolutely shocked at how helpful it was! I uploaded my daughter's 1098-T, her unofficial transcript showing required course materials, and the statements from her two private scholarships. The analysis broke everything down into qualified vs. non-qualified expenses, showing exactly how much was taxable income. What really impressed me was how it flagged potential issues I hadn't even considered, like her university-provided health insurance being potentially qualified with the right documentation. Just filed last week and feel 100% confident we did it right this time!
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Melody Miles
If you're struggling to get someone at the IRS to answer questions about how to handle this 1098-T situation, try Claimyr (https://claimyr.com). I was on hold with the IRS for literally hours trying to get clarification about reporting my kid's excess scholarship income, and getting nowhere. With Claimyr, I got a callback from an actual IRS agent in about 40 minutes instead of waiting on hold all day. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to report the scholarship income on my daughter's return while still claiming her as my dependent. Huge relief to get an official answer straight from the IRS!
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Nathaniel Mikhaylov
•Wait, how does this actually work? The IRS just calls you back? That doesn't sound possible given how understaffed they are. Are these actual IRS agents or just people pretending to be from the IRS?
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Eva St. Cyr
•This sounds like complete BS. I've been trying to reach the IRS for MONTHS about an audit issue. There's no way some random service can magically get you through when millions of people can't get answers. Sounds like a scam to me.
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Melody Miles
•It's actually a legitimate service that works with the IRS's existing callback system. They essentially keep dialing and navigating the phone tree for you until they secure a spot in the callback queue, then transfer that callback to your number. So yes, it's real IRS agents who call you. The reason it works is because the IRS does have a callback option, but it's only available at certain times when call volume isn't at absolute peak. Claimyr's system constantly tries until it gets through to this option, which most people give up before reaching. Nothing magical about it - just automated persistence that most humans don't have the time for.
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Eva St. Cyr
I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was desperate to resolve my audit issue before the deadline next week, so I decided to give it a shot as a last resort. I'm still in shock that it actually worked. After trying for literally months to get through to the IRS, I got a call from an actual IRS agent about 35 minutes after using the service. They answered all my questions about reporting my daughter's excess scholarship income and confirmed that yes, we did need to report it, but also helped me understand how to offset it with some education credits I didn't know we qualified for. Seriously worth it just for the peace of mind of getting official answers instead of guessing.
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Kristian Bishop
Listen to your CPA. These online people dont know your specific situation. CPAs have professional liability insurance for a reason - if they give you bad advice and you get audited, they have to deal with it. Random reddit commenters don't. My CPA told me the same thing and we've never had an issue.
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Kaitlyn Otto
•That's not entirely true though. Just because a CPA has insurance doesn't mean they'll always give you correct advice. What if you get audited years later after you've moved on to a different accountant? And some CPAs are definitely better than others. My friend's CPA told her to do something that resulted in a huge penalty!
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Kristian Bishop
•You make a fair point about the varying quality of CPAs. There definitely are differences in expertise and approach between professionals. I should clarify that I meant a reputable CPA who specializes in personal tax returns is generally more reliable than internet advice. If the CPA is willing to put their recommendation in writing, that shows they stand behind their advice. Most established CPAs won't risk their reputation or potential penalties by advising clients to deliberately ignore taxable income if they're not confident in their position.
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Axel Far
Has anyone had experience with the IRS actually catching and auditing someone over 1098-T scholarship overages? I'm in the same boat with my son having about $14k in excess scholarship and I haven't been reporting it for two years now...starting to get nervous after reading this thread!
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Jasmine Hernandez
•My neighbor's daughter got an audit letter specifically about unreported scholarship income last year. They had to pay back taxes plus interest. Apparently the college had reported the 1098-T to the IRS, and they got flagged when they didn't report the excess on their taxes. Not sure how common it is though.
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Sean Kelly
Your tax preparer's casual approach is really concerning. The IRS has specific rules about scholarship income, and Publication 970 clearly states that scholarship amounts exceeding qualified education expenses are taxable to the student. Even though your daughter is your dependent, she still needs to file her own return if she has taxable income above the filing threshold. The $16,000 difference you mentioned would likely put her over the standard deduction limit, meaning she'd need to file and pay taxes on that excess amount. The college reports this information to the IRS via Form 1098-T, so they have the data to potentially flag discrepancies. I'd strongly recommend getting a second opinion from a CPA who specializes in education tax issues. While many people might not get caught, intentionally ignoring reportable income isn't worth the risk of penalties, interest, and potential audit issues down the road. Better to handle it correctly from the start.
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Malia Ponder
•This is exactly the kind of thorough advice I was hoping to see! As someone new to navigating college financial aid and taxes, I really appreciate you mentioning Publication 970 - that gives me something concrete to reference. Quick question though - you mentioned the standard deduction limit. For 2024, wouldn't a dependent student's filing threshold be lower than the standard deduction amount? I thought I read somewhere that dependents have different thresholds, but I could be totally wrong about that. Also, do you happen to know if there are any legitimate ways to reduce the taxable portion? Like if some of the scholarship money went toward required books or supplies that weren't captured in the 1098-T's box 1?
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