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The client received a 1098T form with blank in Box 1 and $3750 in Box 5. The client didn't pay anything when enrolling in classes (Tuition). I think this is the case because Tuition is free for the first two years at a community college in California. The client only had some book expenses of $400 dollars. Here is the question, because there isn't enough expenses related to school (Tuition, Material, etc.) to offset Box 5, would the amount of $3,350 ($3,750 - $400) become taxable for the client?
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Yes, scholarships that were paid in excess of the qualifying tuition and fee are taxable to the student.
But you generally shouldn't rely solely on the 1098-T, as they are very often wrong. So you may want to get an itemized printout with the details from the college.
