Form 1098-T and Scholarships – Reconciling Education Expenses for 2025 Returns

A tuition statement looks like a finished number, and that is the most common source of confusion in an education credit review. Form 1098-T reports what an institution billed or received and what it credited as scholarships or grants. It does not calculate what a taxpayer can claim.

This educational publication addresses 2025 academic activity reported on individual returns, and explains how the statement, the underlying account ledger and the terms of an award answer different questions. It does not determine eligibility for any credit, the taxable portion of any award, or the result for any student.

1. Which Record Answers Which Question

Three documents commonly arrive for the same student, and each is built for a different purpose. The tuition statement reports institutional figures. The student account ledger shows the dates and amounts of actual transactions. The award letter or grant agreement states the terms and any restriction on how the money may be used.

Those distinctions matter because the credits depend on amounts paid during the tax year, while a restriction in an award letter can determine whether the related assistance reduces those amounts at all.

Assembling the three together is usually faster than resolving a discrepancy later, because the statement alone rarely explains a figure that looks wrong.

2. What Form 1098-T Reports — and the Caution Attached to It

Publication 970 describes Form 1098-T as reporting amounts the school billed or received, along with prior-year adjustments, scholarships or grants, reimbursements and refunds, and whether the student was enrolled at least half-time or was a graduate student.

The publication then adds a caution that governs the whole analysis: the amount shown on the form may differ from the amount actually paid and deemed to have been paid. When figuring a credit, the taxpayer uses only the amounts paid and deemed paid during the tax year.

Two structural features explain most mismatches. Academic terms cross calendar years, so a term billed in one year may be paid in another, and the form is organised around the institution’s reporting rather than the taxpayer’s payment history.

The statement is also not strictly required in every case. Publication 970 notes that a credit can be claimed without Form 1098-T in certain circumstances, such as where the institution is not required to furnish one.

3. Qualified Education Expenses for the Two Credits

For the American Opportunity Credit, qualified education expenses are tuition, fees required for enrollment and course materials the student needs for the course of study — and the publication is explicit that course materials count whether or not they are purchased from the institution.

Several categories are outside the definition for the credits, including courses involving sports, games or hobbies and noncredit courses, unless they are part of the student’s degree programme. Comprehensive or bundled fees require their own analysis, because such a fee may contain both qualifying and non-qualifying components.

The coordination rules then limit stacking. Publication 970 states that a taxpayer generally cannot claim more than one education benefit for the same expense, and that for each student only one credit may be elected per year. The American Opportunity Credit may be claimed for one student and the Lifetime Learning Credit for a different student in the same year.

4. Reconciling Scholarships Against the Remaining Expenses

Tax-free scholarships, grants and similar assistance that must be used for education reduce the expenses eligible for a credit. Pell grants are treated as scholarships for this purpose.

The restriction attached to the money is what drives the result. Publication 970 contrasts GI Bill payments made directly to the school for tuition, which reduce qualified expenses, with an unrestricted housing allowance paid to the student, which does not.

The following hypothetical uses round figures to show the structure of the reconciliation rather than any particular student’s result.

The $4,000 figure is a starting point, not a credit. It still has to pass the eligibility rules for the particular credit, the coordination rules described above and the limits that apply to the taxpayer’s own circumstances. Publication 970 also notes that including otherwise tax-free scholarship amounts in income may increase an education credit, which is an analysis to perform rather than an assumption to carry forward.

5. When a Scholarship or Grant Is Taxable

A scholarship or fellowship grant is tax free only if the recipient is a degree candidate at an eligible educational institution, and only up to the amount of qualified education expenses. Beyond that, Publication 970 identifies the circumstances in which the amount is taxable: where it exceeds qualified education expenses, where it is designated for other purposes such as room and board, where it is payment for teaching, research or other required services, or where the recipient is not a degree candidate.

The services category carries named exceptions, including the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, and certain work-college programmes.

For the scholarship exclusion specifically, room and board, travel, research, clerical help and equipment not required for enrollment fall outside qualified education expenses. An award that covers living costs is therefore treated differently from one restricted to tuition, even when both arrive from the same institution.

If an education item later appears in agency correspondence, the general framework for reading such notices appears in Understanding IRS Notices 2026, and the related question of under-reported amounts is covered in IRS Notice CP2000 2026. Where a required document has not arrived at all, the approach described in IRS Wage and Income Transcript 2026 may help identify what the agency has on file. This publication does not determine any student’s eligibility or result.

Compliance Resources and Tools

• Internal Revenue Service — Publication 970 (2025), Tax Benefits for Education (accessed November 4, 2026).
• Internal Revenue Service — About Form 1098-T, Tuition Statement (accessed November 4, 2026).
• Internal Revenue Service — About Form 8863, Education Credits (accessed November 4, 2026).
• Internal Revenue Service — Education Credits: Questions and Answers (accessed November 4, 2026).