For this year and the past two years, on my 1098-T form, the amount of my scholarships and grants (Box 5) has exceeded my qualified tuition and expenses (Box 2). For 2013, the amount in box 5 was $10,283, and the amount in box 2 was $8,335. For 2014, the amount in box 5 was $22,730, and the amount in box 2 was $16,755. For last year, the amount in box 5 was $19,628, and the amount in box 2 was $17,941. For the 2013 and 2014 tax returns, I was a dependent under my mother. She filed her taxes at Liberty Tax, and both times I brought in my 1098-T form and was told that my mother could not get anything from it and not to worry about it. However, when I went to fill out my taxes at H&R Block this year, I was told that I needed to pay taxes on the overage amount of scholarship and grants for all three years even if it was used for room and board, health insurance, etc. I contacted Liberty Tax, and they said not to worry about it because the IRS “never looks into matters like these, and they do not know or care what I used the overage for”. But, I have done a lot of research online, and it seems that the IRS certainly does care about this money and the taxes I owe. Anyway, I filed my taxes with H&R block and paid the taxes on the overage amount for last year. However, I still had the issue of what do with 2013 and 2014. I contacted a few local tax firms, and I have been told quite a few things. First, I was told that since I only made $1,800 in 2013 (and the taxable income from the 1098-T form was $1,948) for a total of $3,748, that I do not have to file a tax return or pay taxes for 2013 because I am under the income threshold. I was also told that I would have to amend the return I did for 2014 and pay taxes on the overage amount because my income was over the threshold. However, I spoke to another tax preparer and was told that I did have to pay taxes for 2013. Another tax preparer told me that I do not have to pay taxes on any of the overages because the amounts I received in federal pell grants cancel out all of the taxes. Finally, I talked to an accountant, and she said that I do have to pay taxes on the overage amounts for 2013 and 2014, but that my mother is eligible for the AOTC because of my federal pell grants. If I recall correctly, she said that I should allocate my federal pell grant funds ($2,823 for 2013, $5,687 for 2014, and $5,700 for 2015) to tuition rather than to room and board, health insurance, etc. Then I need to add the taxable scholarship income to my income for each year and pay taxes on that overage amount. But, in so doing this, it helps me maximize the amount of expenses eligible to be used to claim education-related tax credits and will let my mother get the AOTC for 2013 and 2014. She then emailed me the IRS publication explaining this and told me that most tax preparers are not aware of this. Also, just to add, in 2013, I paid $2,461 out of pocket and received a stipend for $401.09; in 2014, I paid 3,689.99 and received a stipend for $2,593.25. At this point, I have been told so many different things that I have no clue what to actually do. Can someone please tell me what actually needs to be done? I would just like to know if the tax preparer’s or accountant are right before I pay one of them to help me with my situation. Thank you!
You and your mom should find helps from IRS VITA for your taxes in 2013, 2014, & 2015. They could try to allocate the Pell grants to maximize the AOTC. However, I think if you’re qualified for Pell Grants, your mom’s incomes may not benefit from AOTC fully. The refunds due to AOTC may not more than the taxes that you owe from Federal and your state.
Based on the scholarships only, you didn’t owe any taxes, since the difference is less than the deduction of $6300.
However, I think the work income would’ve put you over the threshold…
It doesn’t matter in what order you paid what. It’s all one big pot of money; look at total expenses and total income.
And of course, don’t forget that for each year, you count what you received and paid that tax yr. (such as if your spring 2014 bill was paid in December 2013, then those expenses apply for 2013 taxes only)
I would go see the accountant, she sounded most knowledgable. Your mom would also have to amend her 2013, 2014, 2015 tax return if she wanted to claim AOTC. It does sound worth checking into if your mom could get money back.
I was a volunteer for VITA this year and can say that the AOTC is very complicated but potentially worth THOUSANDS of dollars, so it’s well worth the hassle and expenses of amended returns.
I did not analyze in detail the various expenses you listed, but it is common for people to get a $1,000 additional refund, and if they had tax due, that would be wiped out by the nonrefundable portion of the AOTC.
I think the accountant has the best grasp of the issue. Ask what her fee would be and can she guarantee that between you and your mother you’ll come out ahead after paying her fee?
Suppose she says she’ll do all the returns for $1,000 (hopefully her fee will be less). Then maybe you will owe $1,000 in taxes and maybe your mom will get refunds totalling $5,000. Net gain $3,000. Not too shabby. Note, these are just random figures, not based on your particulars, but very typical based on what I saw while doing taxes. Your benefit might even be higher.
I also encountered cases where prior year tax preparers, like yours, did not properly report taxable portions of scholarships. I always alerted the client about this (usually they were wondering why their taxes were higher this year). Who knows what the chances are of the IRS getting after you about this, but you can probably correct their mistake AND come out ahead financially.
The accountant is right but the numbers will depend on your specific financial situations.
A decent explanation from the IRS: https://www.irs.gov/pub/irs-utl/Pell%20AOTC%204%20pager.pdf