I had no job in 2015, so no income. Living in TX, age 26, independent, first bachelor degree. I was told I could use my grants and loans as income that would end up being tax-free, and I would be getting money from the American Opportunity Credit.
For 2015 I have:
$4700 in Fed Sub loans
$3586 in Pell Grant
Total: $8286** without the following two grants:
$1535 in TPEG grant (unsure if it’s like the Pell Grant)
$400 in SEOG grant (unsure if it’s like the Pell Grant)
Total with these grants: $10,221. I would use this as income in my 1040 form. I believe I was told it would be tax-free but I could still receive a tax return?
I’m confused why this income would end up being tax-free, is it under a limit? I was advised by them to use (if I remember correctly) Form 1098-t, 8863, and 1040?
I’m hoping to be assured that I understand everything correctly and to be advised on what I should do; such as whether I should use $8286 or $10,221 on Form 1040, or if I need to do so at all to get the AOTC. I intend on using TurboTax and hoping I can access the forms I need there for free.
Loans are not income, they are loans. You don’t include them as income on the 1040. Grants can be used for tuition tax free, but if you use them for other purposes, they are unearned income.
It is unlikely you’ll be able to get the full AOTC as the first $1000 is a refundable credit and you may or may not get that, you’d have to calculate how much you had in tuition, books and fees that you paid (and it’s okay to pay them with loans), but the second $1500 of the full AOTC only offsets tax that you owe. If you owe no tax, you get no credit.
We can’t read your 1098t images. TurboTax might walk you through this correctly.
Regarding TurboTax, I dont know how much to put as income so I don’t think I’m getting an accurate return/AOTC. The site for the blocked link is imgur, I don’t know how to attach pictures here
Turbo Tax will ask for earned income. If all you have for the year is above, the answer is $0. Later it will ask for the amounts on your 1098t, and you can enter those as ‘scholarships, grants’ in one box and then ‘qualified tuition, fees’ in another, and still another box for books.
I think you need more help than we can give you on here today. Grants are not earned income but might be taxable. If ‘someone’ told you you’d get the AOTC, you need to go back to that person and find out why they advised that.
On your 1098T it should have box 2 billed qualified tuition and fees. Then box 5 scholarships and grants.
Is box 2 more than box 5? How much more?
In your interview on Turbotax it might ask you for your profession, you can put student. You attend school full time right? Then it will ask for 1098T.
If you don’t have taxable income (income minus standard deduction and personal exemption) you cannot get the full AOTC, but you can get up to 40% of qualified education expenses or up to $1000 refunded even if you don’t owe any tax.
My 1098t has $5853 for Box 2 (Amounts billed) and $5521 for Box 5 (grants).
I recall being told that I could use the Pell grant money as taxable income because of the qualified expenses or something, which would allow me to get the AOTC?
If you replace the asterisks in the first post with imgur dot com you can see more information on my bills and 1098t.
Ok so your grants covered your tuition and fees almost and then your loan gave you a refund for living expenses probably.
So when you enter in Turbotax for the 1098T $5853 for box 2 and $5521 for box 5 (grant) it would only determine that you had adjusted qualified education expenses of $332.
So you would put the number $2168 where it says what amount of scholarship paid for room and board.
It will make that amount of grants taxable income and report it on your 1040 EZ in the wages line with SCH next to it.
Turbotax should then figure the AQEE as $2500
Tuition $5853 - tax free grants (covering tuition) $3353 (total grants minus amount covering room &board and therefore taxable $5521-$2168 = $3353) will result in AQEE of $2500
That should give you an AOTC of $1000 that is refundable.
When you update your FAFSA to link your tax return after you get your refund, you will probably have $0 listed for question 44 a education credit (because you only received the refundable AOTC) and you will have to enter $2168 in question 44d where it asks for taxable scholarships included in AGI.
Your AGI will be $2168, income from working $2168 and tax paid $0. Question 44d will subtract $2168 from income so it will be $0 for EFC calculation.
Instead of using all of your grants to pay for tuition, you can allocate part of them to pay for room and board, thus making them taxable and leaving some tuition to be paid with loan funds. Then you can claim an AOTC since you paid QEE (tuition) out of pocket (not with tax advantaged funds).
The Pell grant works for this because it can be used for living expenses. In your case you don’t have to make the whole Pell taxable because you have no other income and no tax due (due to standard deduction) so the most AOTC you can get is $1000 so you only need $2500 of qualified expenses to get that.
Since you had $332 of qualified expenses from 1098T plus the amount of Pell made taxable is $2168 that adds up to $2500.
This tax situation is bizarre. My relative is at an “all grants” college and her grant covers all but $1,250 of her COA (her summer earnings expectation). However, the fact that her grant covers room, board, books, insurance and transportation means she is said to have a large “taxable income” each year as her grant substantially exceeds her QEE. The university then grosses up her award for the following year to compensate for the tax she must pay, which leads to more tax! Is there any way around this? I’ve spoken to other parents in similar situations and they all say they face the same thing.
Check post #12, where it is suggested the OP might get the earned income credit, @OhMom2. That’s what I was responding too.
No, if they gross up the award, that is MORE cash that isn’t ‘free’ for tax purposes and there isn’t a way around it. The school is trying to make the student’s awards less of a tax burden, and I’m sure the student comes out better by having the school give them 100% of the amount the student has to pay in taxes, and then the student has to pay 15-28% (parent’s rate) the following year. Paying 15% is better than paying 100%. All they can do is gross up that amount the following year.
My apologies if I said something wrong. I ran the OP’s numbers through an online tax estimator and you could only put income, not clarify if it was W2 income or taxable scholarship income. It generated a higher than $1000 tax credit so I wondered if the rest was because of an EITC.