Some quick background: My wife and I got married at the very end of 2019 and filed jointly for our 2019 return. Right after our marriage (like New Year’s Eve) We also applied for FAFSA for that 2019 year and both received $6000 each in pell grants retroactive for the 2019 year. We are both students and this year our AGI is around $39,000. We’ll both graduate at the end of this year.
The pell grants from 2019 hit our bank account in early 2020. We just put it into savings. We also have recieived the pell grants for the 2020/2021 school year and those have been applied towards our tuition each semester.
The schools we attend are quite affordable and the $3k pell grant covers tuition give or take a few hundred each semester.
The problem is that on both of our 1098T forms it there about $9k on each of our scholarships/grants boxes. And only $3k and $4k in each of our tuition expenses boxes. (The payment for spring of 2020 semester got included in 2019’s 1098). TurboTax is showing that it’s about $10k extra of taxable income and it’s takes our return from about $1200 to having to pay $300.
It doesn’t seem right because that pell grant money has all been used to pay for tuition. Even the retroactive money from 2019 they gave us was used to recover from the cost of tuition for that year and didn’t exceed the cost of tuition. Is there a way to show this to the irs when filing? Do we need to go back and amend 2019’s return? Or are we just out of luck? Thanks for the help.