This is the first year this has happened. D13 has a co-op. She went to school both the spring and fall of 2015 and worked over summer. She received quite a bit of scholarship money this year partially because she went on a trip with the orchestra and it was part of a “study abroad” program and she had good merit and need based scholarships to begin with. I am rounding but her scholarships for the year came to $43k. A good thing …yes. However, they billed for the Spring of 2015 semester and her orchestra trip in December of 2014 so she is showing only the Fall of 2015 tuition as qualified expenses. She also lived off campus for her fall semester so there is no room and board included as part of her qualified expenses as there would have been if she had lived on campus. Her need based scholarship calculated COA based on a room and board allowance for off campus students. Her total qualified expenses for 2015 were about 16500. If they had counted all expenses (including fall room and board) in the year they were used and not billed they would have been around $48k. Because of when they billed and give financial aid it is my understanding that HER income due to the difference will be around $26,500 and that amount will count towards her EFC greatly reducing her need based scholarships for 2016/2017.
Two questions. First am I correct? Second, is there a way to include the expenses she paid for rent, utilities and food towards her education expenses the semester she was living off campus? Thank you.
The cost of room and board is never a qualified education expense for figuring taxable amount of scholarships.
If they billed for spring 2015 semester in December 2014, why didn’t they bill for spring 2016 semester in December of 2015? So you have scholarships for fall 15 and spring 16 on the 2015 1098T, but only tuition for fall 15?
If your D would report the $26,000 as taxable scholarship income on her 2015 tax return and include it in her AGI, then the 2016-17 FAFSA would ask about amount of taxable scholarships included in AGI and that would be subtracted from her income for EFC calculation.
Did your D have book expenses? The scholarships can be reduced by tuition, fees and books to arrive at the taxable amount.
@mommdc She is not in school the spring of 2016 because she is at her co-op so there is no bill. The scholarships she would have been eligible for this spring won’t be applied. Her FAFSA is due at her college March 1. We are waiting to get our taxes done, hopefully within a couple of weeks. I knew her co-op earnings didn’t apply towards her EFC. Yeah!
Another question. This will be the first time I am doing a FAFSA for two children. The 1098 my D13 will be filing with her tax return would only affect her EFC, correct? (I hope)
Ok so you should only have to use the scholarship amount for fall 15 minus the tuition, fees and books expenses for fall 15. The difference is your D13 taxable scholarship amount.
On her tax return she will list her taxable scholarship income, any other work income and any co-op earnings.
Then on her FAFSA she would list the amount of taxable scholarships she included in AGI on her tax return and she would list the co-op income. Those should be subtracted from her income for FAFSA calculation.
Yes, each student would have their own EFC based on parent income and assets and then their income and assets.
How did this work out in year 2013 and 2014? Did she have fall and spring billed expenses and scholarships listed on her 1098T? Did she have taxable scholarships to report those years?
I matched the tuition bill/scholarship received to the tax year. In Dec 14, the school did bill for spring tuition but I didn’t include that on 2014 taxes as part of QEE and will include that QEE in 2015, paid with 2015 scholarships and financial aid. The 1098T DID include the tuition but not the scholarships for spring, so on the tax forms I checked that the 1098 was not correct and filled in the correct amount. I used TaxAct and TurboTax and both programs allowed this. I haven’t gotten the 1098 for this year, but I assume it will be the same.
I just took the tuition bill and put all the numbers in the tax year when used and paid (not when billed), accounting for all scholarships, grants, awards for the term they pay for.
As stated above, any amount used for room and board IS taxable to the student. That’s usually what accounts for the taxable portion of the scholarships. In your case, it might have also included some taxable travel money from the orchestra trip, or meals, or just cash awarded.
What did you do for the 1098 in 2014? Did you include spring 2015 tuition in the 2014 QEE (it sounds like the spring tuition was included on the 1098T for 2014)? If so, then she probably will have a big tax bill for 2015 because she used the benefit of the QEE from the spring on last year’s taxes. If she didn’t need the spring tuition included in her 2014 taxes, you could file an amendment, ‘move/hold over’ that tuition expense to 2015 if you actually paid it in 2015 with scholarship money, and then you could offset some of that $43k in scholarship money. She’d still have taxable scholarship money, but if tuition is $16,500 per semester, it would be $43k in scholarships received in 2015, less $31k in QEE paid in 2015 ($16,500 x 2 semesters), so $12k in taxable scholarships.
I think, not sure, that if you actually PAID the spring tuition in 2014 with cash, that does become a 2014 tax event. That you need to check with the accountant.
Thanks for the responses. I checked the 1098’s for both 2013 and 2014. Both we paid significantly more than she received in scholarships both years. My wife does our taxes so I’ll have to look at our previous taxes to see how that was handled. 2016/17 will be an interesting year as it relates to paying for school. She is cooping this semester, attending school in the summer (I believe 6-8 hours which is full time for summer school), working in the fall and back at school in the spring. She will have tuition for the summer and spring 17 on 2016’s 1098 and likely little scholarship money perhaps only a merit scholarship for the summer session.
@twoinanddone I think I may recommend our D have her taxes done by an accountant.
If the 1098T does not go by tax year it might be better to separate the charges and scholarships out by year.
Look at the billing statements. It should list dates payments were made and scholarships applied and all costs per semester. Every semester she took classes there should be tuition and fees and scholarships for that term.
Remember that room and board costs cannot be subtracted from scholarships to reduce taxable amount.
So you said that the total scholarship amount reported for 2015 was $43,000 and Fall 15 qualified expenses was $16,500. So for two semesters that would be about $33,000. You would still end up with about $10,000 in taxable scholarships.
Any of the tax programs handles the scholarship thing very easily. I used TaxAct for my daughter last year and it printed out the final form with a little ‘scholarship’ designation on line 7, and the forms needed for filing. You have to do your taxes first because you need to put in your tax information for her unearned income rate. Not to confuse you, but you may want her to declare even more of that scholarship as taxable so that you can claim the AOTC. You’d get $2500 as a tax credit, she’d pay taxes on an additional $4k and in most cases the family comes out ahead.
It sounds like she did not ‘use’ the tuition in 2014 taxes, so can just line up the spring 2015 tuition bill with 2015 expenses without having to amend 2014 taxes. However, make sure the ‘significantly more’ that you paid was not all for room and board. You have to make sure the scholarships are offset by QEE.
You can do the same thing in Spring 2017 - match the tuition and scholarships for the summer on the 2016 taxes, hold over the tuition bill from Dec 2016 for spring 2017 till that tax year.