Our son, a full time student, received a token scholarship to work last summer at UW/Madison for $2,500.
It's interesting that we received a 1098-T with the usual tuition boxes, along with the recent scholarship amount AND then also received a W2 for the same amount AND taxes withheld.
I can see the 1098-T for general reporting, but was amazed that a scholarship amount would be treated with a W2 and taxes withheld from the scholarship amount just like it was a job.
If he was issued a W-2 then he was required to perform certain services for the school to obtain the $2500. That makes the payment wages. As such, you can disregard $2500 of scholarships identified on the 1098-T when computing eligibility for any of the higher education tax benefits.
the school to obtain the $2500. That makes the payment wages. As such, you can disregard $2500 of scholarships identified on the 1098-T when computing eligibility for any of the higher education tax benefits.
Agree. Since the "scholarship" was actually taxable income, it does not need to be excluded as a tax-free source of funds used to pay tuition when calculating tax benefits for education.
$2,500 at $10/hr represents over six weeks of full-time work, sounds like a summer job to me, not sure what is "token" about it. He probably still came out ahead, since (without looking it up in the IRS pubs) as a student being employed by his school, he does not have to pay Soc. Security or Medicare tax on these wages, just income tax. Check the W-2 to see if this was the case.
tnx - As I mentioned, he worked there over the summer in a research chem lab...
SO - Should I input both numbers into TurboTax - and it will all shake out, or should I ignore entering the $2,500 listed on the 1098-T or will the IRS do a match - and find I didn't input the Box 5 ??
Do not enter the scholarship dollars from the 1098-T as tax-free scholarship income in TT. In other words, make believe he never received the scholarship.
A couple of points that haven't already been made.
Numbers on the 1098-T are notoriously unreliable. What's most important on that form are the check boxes. Make sure those are right. Ignore the numbers and work from his account records.
When you work from his records you should not see the whole "scholarship" amount credited, but rather, the net after tax withholding.
Since that $2500 was reported as wages it can be the basis for a Roth IRA contribution. It's likely that he won't owe any tax, and this would be a nice place to plop some money for the future.
Phil Marti VITA/TCE Volunteer Clarksburg, MD
BTW - the W2 did indeed have SS and Medicare withheld...
The following link at the Univ. of Wisconsin explains who is exempt from SS & medicare taxes.
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