Back to School – Qualified Tuition and Related Expenses

Posted on Wed, Aug 21, 2019 ©2019 Drucker & Scaccetti

Steven-R-RossmanBy: Steven Rossman, CPA, MT

 

You’re buying tablets, notebooks, and writing big checks for tuition. That can mean only one thing…it’s back-to-school time!  Keeping track of these expenses is important to take advantage of certain tax credits and substantiating payments made from education savings plans. Today, we’ll talk about the IRS form that reports these expenses and some of the tax credits available for students and their parents.

 

Form 1098-T (Tuition Statement) is issued annually by educational institutions and it reports the payments received for qualified tuition and related expenses, as well as scholarships and grants given to the student.  According to the instructions, the 1098-T is to be furnished to the student by January 31st and a copy must be furnished to the IRS by February 28th, following the year for which the qualified higher education expenses are being reported. 

 

From a practical standpoint, the college or university will send the 1098-T to the address on record, which may be the student’s address on campus. Alternatively, the student or the student’s parents may logon to the university’s portal or go to the university’s accounting department to get the form.

 

The information reported on Form 1098-T can be used for claiming credits on the student’s or the student’s parents’ tax return.  It may also be used to substantiate expenses paid from a 529 savings plan. The Tax Cuts and Jobs Act of 2017 made changes to 529 plans from which you may benefit.

 

There are two tax credits that students or their parents can claim, if they are eligible:

 

  1. American Opportunity Tax Credit (AOTC) – An annual credit of up to $2,500 ($1,000 of which can be refunded, if certain criteria are met).  The AOTC is available for the first four years of higher education.  To be eligible for the AOTC, the student must:
  • Be pursuing a degree or other recognized education credential
  • Be enrolled at least half time for at least one academic period beginning in the tax year
  • Not have finished the first four years of higher education at the beginning of the tax year
  • Not have claimed the AOTC or the former Hope Credit for more than four tax years
  • Not have a felony drug conviction at the end of the tax year

The student (or parent) uses information from Form 1098-T to complete Form 8863 (Education Credits), which is attached to Form 1040.

 

2. Lifetime Learning Credit  - An annual credit of up to $2,000.  There is no limit to the number of years the Lifetime Learning Credit can be claimed (vs. the AOTC, which can only be claimed for the first for years of higher education).  For a student to be eligible for the Lifetime Learning Credit, the student must be:
  • Enrolled or taking courses at an eligible educational institution
  • Taking higher education course or courses to get a degree or other recognized education credential or to get or improve job skills
  • Enrolled for at least one academic period beginning in the tax year

Similar to claiming the AOTC, the student uses information from Form 1098-T to complete Form 8863, which is attached to Form 1040.

 

There are income limits for claiming both the American Opportunity Tax Credit and the Lifetime Learning Credit, so check the instructions or consult your tax advisor when you receive a 1098-T for qualified higher education expenses.  Also, see Publication 970 (Tax Benefits for Education) for more information regarding deductibility of education expenses.

 

Going back to school is an exciting time for students (and some parents), but don’t forget to keep track of your education expenses, which can be worth valuable tax credits to help pay for school (or beer). #TalkingTaxesWithYourKids

Topics: Education tax credit, Tuition, AOTC, Lifetime Learning Credit, 529 Plans, qualified tuition program, Form 8863, Form 1098-T, American Opportunity Tax Credit

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