24 Nov Will my college student need to file a tax return?

Q. My daughter has a college scholarship. I know the amount used for expenses other than tuition are taxable. It will send a 1098-T, which I assume will be in my daughter’s name. She’s never had to file a tax return before. Does she have to now or can I ignore the tax form?
— Dad

A. There are several reasons you may want to file the tax return.

Form 1098-T is a form provided to you and the IRS by an eligible educational institution that reports, among other things, amounts paid for qualified tuition and related expenses.

The 1098-T form reports information on what you were billed in tuition expenses at a college or university. All colleges and universities are required by the Internal Revenue Service to provide you with this information, said Altair Gobo, a certified financial planner with U.S. Financial Services in Fairfield.

The form may be useful in calculating the amount of the allowable education tax credits, he said

If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return, Gobo said.

“That will require a tax return to be filed and the student will have to pay the self-employment tax on that income,” he said. “If the grant/scholarship amount (box 5) is more than the tuition (box 1/box 2) you may want to report it because excess scholarship money may be treated as taxable income on your return.”

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This story was originally published on Nov. 24, 2020.

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