My daughter is attending graduate school at the University of Montana, Bozeman. She is being paid 2500.00 per month to cover her expenses as well as an additional expense account to cover books and items like her computer. She has been told that she will not receive a form 1098 from the college.

She went to an H&R Block office in Bozeman to have her taxes done and the preparer told her that this money is a scholarship and she shouldn't have to pay any taxes on the money. My daughter argued the point with the preparer pointing out that some of her friends that are also being paid to attend grad school were penalized by the IRS for not paying taxes on the money they received. She finally got her preparer to create a W-2 and paid taxes on the income she received.

My questions are 1) is this correct? Why isn't she getting a form 1098? Does she also need to pay social security tax and medicare tax on this income, because her tax preparer didn't have her pay these?

Thanks in advance