Importance Of IRS Form 1098-T
Most individuals are familiar with IRS forms W-2 and 1099, but few are aware of IRS form 1098-T. The reason for this is, families that do not have a student in college do not see or receive this form.
The college the student attends will send a copy of the 1098-T at the end of the school year to the student. This form will show the amount of qualified expenses charged and what payments and type of payments were paid from all sources during the year. The college will send a copy of the 1098-T to the IRS as well.
The student has the election to direct any scholarship (in most situations)to be applied toward qualified or non-qualified expenses. If they elect to use the scholarship to pay for qualified expenses, the scholarship will be tax-free to the student. If this happens, it could disqualify the parents from receiving part or all of the Hope, Lifetime Learning Tax Credits or Educational Deduction.
It could dictate whether the interest paid on student loans, (Stafford or other qualified student loans) is tax deductible to the student during or after graduation. It could also dictate whether the parent can deduct the interest on any of their college loan interest payments made during or after the student graduates as well.
The 1098-T will show the amount of scholarships the college received for the benefit of the student and here is where the problem begins.
