- Form 1098-T is an informational tax form that reports the amount you paid for tuition, as well as the amount you may have received in scholarships.
- This form is useful for claiming education tax credits, and for potentially reporting taxable scholarships.
- Families still need to keep their own records to reconcile tax season.
Every year, millions of families receive a tax form if they pay for college. Form 1098-Ta tuition statement, is issued by colleges and is intended to help taxpayers claim tax credits for education. However, it often creates confusion about scholarships, taxable income, and who owes what.
For families paying for college, a misunderstanding could mean lost tax credits, unexpected student taxes, or errors reflected in future health insurance and financial aid benefits.
Here’s what you need to know about the 1098-T, how it works, and what families need to watch closely — especially when it comes to scholarships.
What is Form 1098-T and where does it come from?
Eligible colleges, universities, and vocational schools must send Form 1098-T to students who paid qualified educational expenses during the year. Schools must email the form or make it available electronically via January 31They file a copy with the IRS by February 28 (or the next business day if it falls on a weekend or holiday).
The form exists to assist taxpayers in claiming education tax benefits, primarily:
- the American Opportunity Tax Credit (AOTC)
- the Lifelong learning credit
It does not calculate taxes. It does not show what the family owes. It simply reports the amounts the school received and the scholarships it processed.
Who receives a 1098-T?
The form is issued to studentEven if one of the parents pays the bill. This is important because:
- Parents claim education credits only if the student is their dependent.
- Scholarships are taxed studentnot the parent.
Schools must send a 1098-T when a student pays qualified education expenses, which generally include:
- teaching
- Registration fees required
- Required study materials
Room and board costs are not expenses that qualify for education tax credits, although the school often charges a fee for them.
Key funds to know
Understanding some of the boxes explains most of the figure.
Box 1: Payments received
This shows the amount the school actually received during the year for eligible tuition and related expenses. It may not match the semester shown on the invoice, because schools report when they receive payment, not when classes begin.
Box 5: Scholarships and grants
This shows the scholarships and school grants applied to the student’s account. These amounts often reduce the amount of tuition families can use to claim tax credits.
Crucially, Box 5 does not tell you whether the scholarship is taxable. It depends on how the funds are used.
Box 8 and Box 9
- Box 8: The student is registered at least half-time
- Box 9: The student is registered in the graduate program
These funds are important for creditworthiness, especially AOTC.
Financial consequences
This model can have many financial consequences.
Scholarships and Taxes: What is tax deductible and what is not
Scholarships are often assumed to be tax deductible. This is only partly true. Sometimes scholarships are taxable.
Tax-free scholarships
The following uses are tax deductible:
- teaching
- Required fees
- Computers, books and supplies required
A simple formula applies:
Tax-deductible grant = eligible expenses
(Usually Box 1 of the 1098-T, plus required books and supplies that the school did not bill for)
Taxable scholarships
Scholarships used for the following are taxable income to the student:
- Room and board
- He travels
- insurance
- Other expenses are not required
It does not matter whether the money was paid to the school or to the student.
Coordination with tax exemptions
The AOTC value is up to $2500 per studentbut only if there is at least $4,000 in eligible expenses Available to claim.
Some families are unable to do so because scholarships cover most or all of the tuition fees.
This is where tax rules are important.
If the terms of the scholarship allow it, families can Treat part of the scholarship as payment for room and boardeven if the school applies it to tuition fees. This portion becomes taxable income for the student — but it can free up education expenses so a parent can claim the full AOTC.
The IRS explicitly allows this format in its education tax guidance.
In practice:
- The student may owe a small amount of tax.
- The family may receive a much larger tax credit.
For many families, math works to their advantage.
Bottom line
The 1098-T is a starting point, not an answer sheet. It may be helpful to have valuable tax credits and clarify when scholarships are taxable. However, it can also result in families paying excess taxes or missing out on benefits they are entitled to claim.
For families navigating the costs of college, understanding this model is less about paperwork and more about keeping more money in place.
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