Form 1098-T & Scholarship

[Lion EA]

Scholarship is higher than Tuition paid. I can add books & school supplies, yes? Computer? Internet? Are all those allowed?

What about rent/room & board?

[Lion EA]

Giving this a bump up, because it scrolled off my screen and probably yours!

I'm sleep deprived and losing focus on my research. If you know, please help. This kid was a full-time student at Yale in 2020, but graduated in 2021 and leaves for the Marines this weekend. I need to prepare his (and his mother's, due to Kiddie Tax) returns this week.

(Actually, I have 27 more returns, including our own to prepare. So, I'm trying to get through 1-2 per day, but everyone has something new in their documents this year.)

[Hahn1040]

Qualified education expenses. For purposes of
tax-free scholarships and fellowship grants, these are expenses for:
• Tuition and fees required to enroll at or attend an eligible educational institution; and
• Course-related expenses, such as fees, books, sup-
plies, and equipment that are required for the courses
at the eligible educational institution. These items
must be required of all students in your course of instruction.
Expenses that don't qualify. Qualified education expenses don't include the cost of:
• Room and board,
• Travel,
• Research,
• Clerical help, or
• Equipment and other expenses that aren't required for
enrollment in or attendance at an eligible educational
institution.

[Lion EA]

Thanks, Hahn. I must've read a similar set of lists 7 times without seeing the breakout for Don't Apply. Thank you!

[Hahn1040]

Oh! I know how that is:  your eyes see it but by the time it gets to the brain.... it does not register.

It is definitely difficult to keep straight what are eligible expenses for tax-free scholarship vs. AOC vs LLC vs 529 expenses.

...you said he is leaving for the Marines.   Did he have ROTC or Veterans benefit scholarships?  Make sure that none of the allowances for housing are included in the scholarship amount.  BAH is paid separately and not included in income.   If he had those, look at the Veterans Administration section of Pub 970 and/or go to: https://benefits.va.gov/gibill/. 

Probably you are looking at the 1098-T.  BAH would/should never be a part of the box 5 scholarship figure.  So you do not have to consider it.

[Lion EA]

Yep, 1098-T and the cover letter from Yale. It appears the scholarship is from Yale only. Neither he nor his mother said anything over the last four years about ROTC, so I was very surprised to find he's leaving for the Marines in a few days! She just mentioned something about OCS and Quantico, but I think that's starting in this October. He also had a W-2 from DFAS for a 2020 summer program. Box 1 was a little higher than 3 & 5, so maybe summer housing...

2021 will probably be where I have BAH and such paid for the fall after graduating from Yale this spring. I will save your link and Pub 970 in his electronic file for 2021.

Thanks so much, Hahn. I'm definitely nearing burnout and need a few days this fall to play with grandchildren.

[Hahn1040]

You will not have to consider the BAH and BAS (housing and food allowances) for active duty.    Both are not taxable and are not reported on the W-2. 

as for state... once he is active duty, he will remain a resident of his state of record.  So if he was a CT resident when he joined, he remains a CT resident unless he takes the steps to change it.  When stationed in VA, his active duty pay is not taxed to VA.  If he were to have a side-job, then that would be taxed to VA as a non-resident (form 763) .  For 2021, he will be taxed on all of his income as a resident.  For 2022, he may qualify to be considered a non-resident if he is not in CT 30 days and maintains a permanent place of abode in another state.  see: https://portal.ct.gov/-/media/DRS/Publications/pubsip/2019/IP-2019(5).pdf

[Lion EA]

This is very helpful info, Hahn. It's been years since I had a client in the military, probably back to my Block days. He has said that CT is his state of record. He himself has never maintained a PPA as he lived in his mothers home in CT and attended Yale in CT through May 2021, but his mother's home is open to him, probably without any restrictions. I think his first year will be intense, so he might not step foot in CT for 30 days during 2022. I guess then it depends on if he maintains a PPA in another state... Would that mean no state tax to any state, if CT is his state of record but VA or another state becomes his PPA? (That's the least we can do for our military.)

Thank you very much for sharing your time and knowledge during these last hectic weeks.