WARNING for students: TurboTax & TaxSlayer NOT automatically calculating taxes from 1098-T scholarship income!
Just wrapped up my master's degree last semester and wanted to give everyone a heads-up about a serious tax filing issue I discovered. If you received scholarships, grants, or fellowships reported on Form 1098-T, be extremely careful when using TurboTax or TaxSlayer! I found out that neither software automatically adds excess scholarship/fellowship money to your taxable income. This is a HUGE problem because any scholarship/grant money that exceeds your qualified education expenses is actually taxable income! The software doesn't catch this automatically. I almost submitted my return with several thousand dollars of unreported income before catching the issue. After hours of frustration and digging through help articles, I finally found that you need to manually add this as "other income - scholarships" in both programs. The option is buried deep in the software and not at all obvious. The tax center volunteers at my university weren't even aware of this until I brought it up. It's especially tricky for those of us who started jobs after graduation since our tax situation is already more complicated. So PLEASE double-check your returns if you received a 1098-T! Don't rely on the software to get it right automatically.
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Mateo Hernandez
You've highlighted a critical issue many students miss! As someone who's helped hundreds of students with tax preparation, I can confirm this is a common oversight. Here's what's happening: Scholarships and grants that exceed qualified education expenses (tuition, required fees, and course materials) become taxable income. The 1098-T form itself doesn't differentiate which portions are taxable - that calculation is on you. Box 5 shows scholarships/grants received, and Box 1 shows tuition paid. If Box 5 is larger than Box 1, you likely have taxable scholarship income. To properly report this: Subtract qualified education expenses from your total scholarships/grants. The excess amount should be reported as "Other Income" with a description like "Excess scholarship" or "Taxable scholarship." This is true regardless of which tax software you use. Common qualified expenses include tuition, required fees, and required books/supplies. Room and board are NOT qualified expenses, so scholarship money covering those is always taxable.
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CosmicCruiser
•This is really helpful info, but I'm still confused about one thing. My 1098-T has numbers in both Box 1 and Box 5. Box 1 shows $12,500 for tuition, and Box 5 shows $15,000 for scholarships. Does that mean I have $2,500 in taxable scholarship income? Also, do student loans factor into this calculation at all?
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Mateo Hernandez
•The difference between Box 5 ($15,000 scholarships) and Box 1 ($12,500 tuition) is $2,500, which would typically be taxable scholarship income. This represents money that covered expenses beyond qualified education costs. Student loans do not impact this calculation. Loans are not considered income because you must repay them. Only scholarships, grants, and fellowships that don't require repayment are potentially taxable when they exceed qualified expenses.
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Aisha Khan
After struggling with my taxes as a grad student for years, I finally found taxr.ai (https://taxr.ai) and it completely changed my tax filing experience. When I uploaded my 1098-T, it immediately flagged that I had excess scholarship income that would be taxable and walked me through exactly how to report it properly. The tool analyzed my transcript and broke down which portions of my funding were taxable vs. non-taxable. It even showed me which educational expenses I could claim to offset more of my scholarship income. Their explanation of the rules around qualified vs. non-qualified expenses was way clearer than anything I found on TurboTax.
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Ethan Taylor
•Does it actually work with complicated fellowship situations? I have a research assistantship that covers tuition plus a stipend, and my university doesn't withhold taxes on any of it. Last year I ended up owing a bunch at tax time and I'm worried about repeating that mistake.
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Yuki Ito
•I'm skeptical - does this actually integrate with TurboTax or other software? Or is it just giving you information that you still have to manually enter? I'm already halfway through my return in TaxSlayer and don't want to start over.
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Aisha Khan
•It absolutely handles complex fellowship situations. Research assistantships are actually one of its specialties - it correctly distinguishes between the tuition remission portion (usually not taxable) and the stipend portion (which is typically taxable income). It also explains potential qualified expenses you can claim against that income. The system gives you clear, personalized instructions for entering everything correctly in TurboTax, TaxSlayer, or other tax software. You don't need to start over - you just need to know exactly where to enter the information in your existing return. It tells you the exact screens and fields where these scholarship items should go.
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Yuki Ito
Just wanted to follow up after trying taxr.ai - it was honestly exactly what I needed! I uploaded my 1098-T and financial aid documents and it immediately identified that I had $3,750 in taxable scholarship income that TaxSlayer hadn't calculated. It gave me specific instructions on where to add this in TaxSlayer (under Other Income with the description "taxable scholarship"). The breakdown of which expenses qualified to offset scholarship income was super helpful too. I didn't realize my required lab equipment could count! That saved me about $600 in taxable income. The whole process took maybe 20 minutes and potentially saved me from an IRS notice down the road. Definitely recommend for anyone dealing with 1098-T forms.
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Carmen Lopez
After reading this thread, I spent FOUR HOURS on hold with the IRS trying to get clarification about my fellowship income. This is ridiculous! Finally discovered Claimyr (https://claimyr.com) and they got me connected to an actual IRS agent in under 20 minutes! There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what others have said - the excess scholarship/fellowship amount needs to be manually added as "Other Income" in tax software. She also told me which form I needed to file to amend my previous year's return where I'd made this exact mistake. I've been stressing about potentially getting audited, so it was a huge relief to talk to someone official.
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Andre Dupont
•How does this service actually work? I'm confused about how a third party can get you through to the IRS faster. Do they have some special access or something?
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QuantumQuasar
•Yeah right. I find it hard to believe any service can actually get through the IRS phone maze. Their hold times are legendary. This sounds like a scam that just takes your money and puts you on hold like everyone else.
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Carmen Lopez
•The service works by using specialized technology that navigates the IRS phone system and waits on hold for you. When they reach a representative, you get a call connecting you directly to the agent. It's basically like having someone wait in line for you. They definitely have no special access or relationship with the IRS - they're just using technology to handle the frustrating wait time part. I was skeptical too until I tried it. You can watch the video link I posted to see it in action. It saved me literally hours of my life that would have been wasted listening to hold music.
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QuantumQuasar
I need to publicly eat my words. After posting my skeptical comment yesterday, I decided to try Claimyr out of desperation since I've been trying to reach the IRS for weeks about my amended return (which I had to file after realizing I messed up reporting my teaching assistantship income). I got connected to an IRS agent in about 15 minutes. The agent confirmed that my amendment was processed correctly and that I wouldn't face any penalties for the original error since I self-corrected. She even gave me some advice about how to properly report my assistantship income for this year to avoid the same issue. The peace of mind was absolutely worth it. I hate being wrong on the internet, but in this case I'm happy to admit it!
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Zoe Papanikolaou
This happened to me last year! I got a letter from the IRS saying I underreported my income by $4,200. Turns out it was exactly the amount of my housing scholarship that exceeded my tuition. Had to pay back taxes plus a penalty. Worst part is I asked the financial aid office if the housing scholarship was taxable and they told me "we can't give tax advice" which was useless.
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Jamal Wilson
•Did you have to fill out a specific form when you got the IRS letter? My situation sounds similar and I'm worried I might get one of these letters too. Was it difficult to resolve?
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Zoe Papanikolaou
•I received a CP2000 notice which is basically the IRS saying "we think you made a mistake" rather than a full audit. They calculated what they thought I owed including penalties and interest. I had to fill out a response form agreeing with their assessment (since they were right), and then set up a payment plan since I couldn't afford to pay it all at once. The process wasn't too difficult, but it was stressful and the penalties added about 20% to what I would have owed if I'd just done it correctly the first time.
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Mei Lin
Something else to watch out for - if you're an international student on an F-1 or J-1 visa, the tax rules for scholarships are TOTALLY different! Most tax software doesn't handle this correctly either. International students often need to file form 1040NR and may be exempt from taxes on scholarships under tax treaties.
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Liam Fitzgerald
•This is so important! I'm from Canada studying in the US and had to file both US and Canadian tax returns. My university's tax help center couldn't even assist with international student situations. I ended up using Sprintax which specializes in nonresident tax returns.
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