The purpose of a 1098-T is to allow students and the parents of dependents students to take an education-related tax deduction or credit. The 1098-T form (p. 4) states:
You, or the person who can claim you as a dependent, may be able to claim an education credit on Form 1040 or Form 1040A. This statement has been furnished to you by an eligible educational institution in which you are enrolled, or by an insurer who makes reimbursements or refunds of qualified tuition and related expenses to you. This statement is required to support any claim for an education credit.
While some universities use the 1098-T to report fellowship stipend income, not all do. Once a student’s non-compensatory (fellowship and scholarship) income exceeds his qualified education expenses (as is the case for many funded graduate students), the university has three choices: 1) generate a 1098-T that reflects all of the fellowship stipend and scholarship income, 2) generate a 1098-T the reflects the scholarship but not fellowship stipend income, or 3) not generate a 1098-T.
Universities do not have to report (net) non-compensatory taxable scholarship and fellowship pay to the IRS, either on a 1098-T or a 1099-MISC, though some choose to. The instructions for the 1098-T (p. 2) state:
File Form 1098-T, Tuition Statement, if you are an eligible educational institution that received payments for qualified tuition and related expenses from a student. You must file for each student you enroll and for whom a reportable transaction is made… Exceptions. You do not have to file Form 1098-T or furnish a statement for:… Students whose qualified tuition and related expenses are entirely waived or paid entirely with scholarships.
These instructions reinforce the idea that the purpose of the 1098-T is to claim an education tax benefit, and when an education tax benefit is not available, the 1098-T becomes optional.
Therefore, if you receive a 1098-T, you can reference it for the total amounts of scholarship income and qualified education expenses processed by your student account. Double-check the amounts reported in Box 2 and Box 5 of the 1098-T against the transactions in your student account to verify their accuracy. If you do not receive a 1098-T, likewise you will need to access your student account and your own bank records (or the courtesy letter or 1099-MISC sent to you) to tally all the fellowship and scholarship income you received as well as all the qualified education expenses. Please take note that the definition of qualified education expenses changes depending on the type of education tax benefit you are claiming, so what your university deems qualified education expenses for the 1098-T may not match what you decide to claim.
We at Personal Finance for PhDs are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.
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