I was discussing my tax experiment with my sister and she had some good info to add. She is a wife and mother with kids in college, works at a private college as assistant bursar, and has an accounting degree. She believes the 1098-T form for reporting tuition and scholarships is confusing for students, parents, and colleges. Here are her comments:
The form I was talking about, the 1098-T form, is a form required to report tuition and scholarships for the calendar year. We report amounts billed in box #2 versus payments received in box #1. Scholarships and grants posted to the student’s account are reported in box #5. Typically if the amount reported in box #2 for tuition & fees is greater than box #5 for scholarships, the parent may be eligible for a tax deduction or tax credit. Conversely if the scholarships are greater than the tuition billed, the student may have taxable income (because the excess is considered to be used for room & board which is not a deductible expense). IRS publication 970 goes into detail about tax deductions & credits and taxable income from scholarships and is a good resource when trying to figure this out.
So, if you have questions about the 1098-T form, you are not alone. Check with your tax advisor and contact the college for clarification.