Q. Who files the 1098-T on tax return. student or parent?
A. It depends. It could be one of you. It could be both. It could be neither.
The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or deduction or possibly your student has taxable scholarship income. At first glance, it appears your student has taxable scholarship and she should enter the 1098-T on her return.
Q. Can I still claim her as a dependent?
A. Yes. Where the1098-T goes is irrelevant to the dependency issue.
Q. It says that if I claim her as a dependent I enter the 1098T?
A. What that means is that since she is your dependent, only you can claim the tuition credit or deduction. So, if you were eligible for the credit, you would enter the 1098-T.
If her W-2 income plus the taxable amount of scholarship is less than $12,400 (and she has no unearned income or withholding in box 2 of the W-2), she does not need to file a tax return.
But wait, there's more.
There is a tax “loop hole” available. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship. You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.
Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.
Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $5000 of taxable scholarship income.
