ZZ Archive‎ > ‎

Scholarships, Tuition, & Education Credits

Tax Benefit - Education – Scholarship & Credits Instructions

 

See Pub 4012, page 13-1 for a nice table summary, also pages G-4 & G5 and IRS Pub 970

A must read for scholarship income ... refer to Publication 970, Chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions

 All scholarship income is taxable
                        unless it is offset by "qualified tuition and related expense".

Scholarships:

·         Start with 1098-T and determine if there were other scholarship grants

·         Reduce taxable scholarship/grants by qualified tuition and related expenses

·         Generally excess scholarship/grant amounts are taxable for the student (regardless of dependency/exemption)

·         Box 5, Form 1098-T – Scholarship or grants offered through institution

·         Identify all qualified tuition and related expense

§  Boxes 1 (payments received) or Box 2 (amounts billed), Form 1098-T qualified tuition and related expense.

§  Use Pub 4012, page D-3, Tax Treatment of Scholarship and Fellowship Payments.

§  Check Pub 970, Chapter 1 for further clarification of expense amounts that qualify

·         Cost for room, board, iPods, iPads, medical insurance, do NOT qualify.  Computers must be required for enrollment or attendance.

·         TaxWise:  open 1040 Wkt1 – input taxable (excess) scholarship/grant amounts (flows to 1040 line 7)

·         Use Pub 970, Chapter 1:

§  Defines: qualified tuition and related education expenses

§  Give examples and tax specifics on many type of education assistance, such as Fulbright Grants, Pell Grants, Veteran’s Benefits, Tuition Reduction, etc.

·         Scholarships or awards from other organizations (e.g. PTO, parent groups, etc.) are also taxable if they are not used to pay “qualified tuition and related expense”.

 

Education Credits:

(Note) If scholarship and grants exceed “qualified tuition and related expenses”, there will be NO opportunity for an education credit.  Additionally, there is no double benefit allowed.

 

American Opportunity Credit:

·         Reference:    Pub 4012, page 5-4 (2011)      Pub 970, Chapter 2

·         Does the student/dependent qualify?  See Pub 4012, page G-3 (2011) and Figure 2-1 and Figure 2-2 in Pub 970, pages 10 and 13.

·         Determine “qualified tuition and related education expenses”

o   Amounts included in Boxes 1 or 2, Form 1098-T

o   Additional expenses for books, supplies, and equipment needed for a course of study are included … whether or not the materials are purchased from the education institution.  (generally, clothes, computers, iPods, or iPads are not “needed”, unless required by all students enrolled in a class).

o   Reduce by the amount by scholarships and grants from Box 5, Form 1098-T

·         TaxWise: 

o   Add Form 8863, pages 1 and 2 to the tree. 

o   Start input on page 2

o   Be careful with the 4 year rule.


 

Lifetime Learning Credit:

·         Same references as American Opportunity Credit     Pub 970, Chapter 3

·         Does the student/dependent qualify?  See Pub 4012, page G-3 (2011) and Figure 2-1 and Figure 2-2 in Pub 970, pages 10 and 13.

·         Determine “qualified tuition and related education expenses”

o   Amounts included in Boxes 1 or 2, Form 1098-T

o    Qualified education expenses only include the fees and expenses that must be paid to the institution for enrollment or attendance.  (Should be on the 1098-T and does not generally include books.)

o   · Reduce by the amount by scholarships and grants from Box 5, Form 1098-T

·         TaxWise: 

o   Add Form 8863, pages 1 and 2 to the tree. 

o   Start input on page 2

o   Check Pub 4012, page 13-1 to compare with American Opportunity Credit

Tuition and Fees Deduction

·         Reference        Pub 4012, page E-3      Pub 970, Chapter 6

·         Does the student/dependent qualify?  See Pub 4012, page E-3 (2011) and n Pub 970, Chapter 6.

o   Must check to see which credit or deduction applies and is most beneficial to the taxpayer … check the American Opportunity Credit, Lifetime Learning Credit, Tuition and Fees Deduction.

·         Determine “qualified tuition and related education expenses”

o   Amounts included in Boxes 1 or 2, Form 1098-T

o    Similar to Lifetime Learning Credit … qualified education expenses only include the fees and expenses that must be paid to the institution for the enrollment or attendance.  (Should be on the 1098-T and a “bookstore receipt does not count.)

o   · Reduce by the amount of scholarships and grants from Box 5, Form 1098-T

·         TaxWise: 

o   Add 1040 Wkt2 to the tree. 

o   Follow the instructions and input in the appropriate section of 1040 Wkt2

o   Check Pub 4012, page 13-1 to compare with American Opportunity Credit and Lifetime Learning Credit.

 

Notes:

·         Some education expenses may qualify as a business expense on Schedule C or job related expense on Schedule A.

·         If qualified education expenses are paid with certain tax free funds, the taxpayer cannot claim a credit for those amounts. The taxpayer must reduce the qualified education expenses by the amount of any tax-free educational assistance received.

 

IRS Instructions for Form 8863, Line 7

posted Jan 24, 2013, 5:39 PM by Wayne Culp   [ updated Jan 24, 2013, 5:41 PM ]

If you were under age 24 at the end of 2012 and the conditions listed below apply to you, you cannot claim any part of the American opportunity credit as a refundable credit on your tax return. Instead, you can claim your allowed credit, figured in Part II, only as a nonrefundable credit to reduce your tax. 

You do not qualify for a refundable American opportunity credit if 1 (a, b, or c), 2, and 3 below apply to you.

1. You were:

a. Under age 18 at the end of 2012, or

b. Age 18 at the end of 2012 and your earned income (defined later) was less than one-half of your support (defined later), or

c. Over age 18 and under age 24 at the end of 2012 and a full-time student (defined later) and your earned income (defined later) was less than one-half of your support (defined later).


2. At least one of your parents was alive at the end of 2012.

3. You are not filing a joint return for 2012.  If you meet these conditions, check the box next to line 7, skip line 8, and enter the amount from line 7 on line 9.

If these conditions do not apply to you, complete line 8.  You can answer the following questions to determine whether you qualify for a refundable American opportunity credit.


1. Were you under 24 at the end of 2012?

·         If no, stop here; you do qualify to claim part of the allowable American opportunity credit as a refundable credit.

·         If yes, go to question 2.

2. Were you over 18 at the end of 2012?

·         If yes, go to question 3.

·         If no, go to question 4.

3. Were you a full-time student (defined later) for 2012?

·         If no, stop here; you do qualify to claim part of your allowable American opportunity credit as a refundable credit.

·         If yes, go to question 5.

4. Were you 18 at the end of 2012?

·         If yes, go to question 5.

·         If no, go to question 6.

5. Was your earned income (defined later) less than one-half of your support (defined later) for 2012?

·         If no, stop here; you do qualify to claim part of your allowable American opportunity credit as a refundable credit.

·         If yes, go to question 6.

6. Were either of your parents alive at the end of 2012?

·         If no, stop here; you do qualify to claim part of your allowable American opportunity credit as a refundable credit.

·         If yes, go to question 7.

7. Are you filing a joint return for 2012?

·         If no, you do not qualify to claim part of your allowable American opportunity credit as a refundable credit.

·         If yes, you do qualify to claim part of your allowable American opportunity credit as a refundable credit.

See:  IRS Instructions for Form 8863

Earned income. Earned income includes wages, salaries,

Scholarships and Education Credits

posted Nov 30, 2012, 3:14 PM by Wayne Culp   [ updated Nov 30, 2012, 3:14 PM by Wayne Culp ]

A good summary guide is Pub 4012 page 13-1 (near the end of the spiral manual).
 
The student's Form 1098T:
1. Check for scholarship income,  If box 5 is larger than either box 1 or box 2, then there is a good chance there will be scholarship income for the STUDENT.  Open Pub 4012 page D-3 and/or the Pub 970 Chapter 1 to help determine Scholarship Income.  
  • The scholarship amount in box 5 should be reduced by the "Tax free" amounts designated on thePub 4012 page D-3 chart.  
  • Check the footnotes for Fees, Books, Supplies, & Equipment.  
  • Most colleges do NOT require computers or other electronics for enrollment or attendance.  
  • The chart in the Pub 970 Chapter 1 might be useful.  
  • There are also "tax-free scholarships and fellowships" so be careful.  
  • Regardless, if the student is a dependent or not, they are the one responsible to report Scholarship income on Line 7 of the Form 1040 (in Tax-Wise, entered through a link to 1040 Wkt 1).  
  • If there is scholarship income and there are no "qualified tuition and related expense" payments (cash or check to the school) by the student or the parents, then there generally is scholarship income.


2. Determine if there is any opportunity for a tuition and fees deduction on Form 1040 line 34 (Form 8917) or one of the Education Credits on Form 1040 Line 49 (Form 8863).  A taxpayer can only take ONE, so the preparer should work both methods to see which generates the lowest  tax owed or highest refund.  The student's From 1098T, box 1 is a starting point.  For further expense the taxpayer should other documentation of the cost (checks or receipts for books).
  • Pub 4012 page E-3 for the tuition income deduction (1040 page 1)
  • Pub 4012 page G-4 for the education credits (Form 1040 page 2)
  • Checkout between both options to determine who can get the adjustment for tuition or the education credit.
  • Determine the "qualified tuition and related expenses" that qualify.  Another guide is Pub 4012 page 13-1.

Books and School Supplies

posted Mar 19, 2012, 6:14 PM by Wayne Culp   [ updated Mar 19, 2012, 6:23 PM by Wayne Culp ]

Course materials, books and school supplies are an eligible expense for the American Opportunity Credit  only, these expenses are NOT eligible for the Lifetime Learning credit. Course material expenses
are not included in box 2 of the 1098-T. You may add the expenses you incurred for books and school expenses to box 2 for the American Opportunity Credit only. 

This is clearly explained in the attached explanation sent to Omaha's Metro Community College students with the Form 1098T.  Also see Metro's website: http://www.mccneb.edu/currentstudents/1098Tinfo.pdf

When Must an Education Credit Be Repaid (Recaptured)

posted Feb 20, 2012, 5:31 PM by Wayne Culp   [ updated Feb 20, 2012, 5:31 PM by Wayne Culp ]

See Pub 970, pages 16 and 25

If, after a tax return is filed and the taxpayer receives tax-free educational assistance for, or a refund of, an expense used to figure a prior year American Opportunity Credit or Lifetime Learning Credit, the taxpayer may have to repay all or part of the credit.  This may be indicated when an amount is reported on the current year “Form 1098-T, Box 4. Adjustments made for a prior year” reports. 

The education credit(s) for the prior year must be refigured as if the assistance or refund was received in the prior reported year.  Subtract the amount of the refigured credit from the amount of the credit claimed in the prior year tax filing.  The result is the amount to be repaid.  In Taxwise, the repayment (recapture) is manually added to the tax liability on:

Form 1040 page 2, Line 44 Education Credit Recapture Amount (last line of the line 44 amounts)

The original (prior year) tax return does not change.

 

Example.  Taxpayer paid $7.000 tuition and fees in August 2010, and the student began college in September 2010.  The taxpayer filed their 2010 tax return on February 15, 2011 and claimed an American opportunity credit of $2,500.  After the return was filed, they received a refund of $4,000.  They must refigure their 2010 American opportunity credit using $3,000 of qualified education expenses instead of $7,000.  The refigured credit is $2,250.  In Taxwise manually include the difference of $250 in the Form 1040 page 2, Line 44 Education Credit Recapture Amount.

For Omaha Training

posted Jan 15, 2012, 11:09 AM by Wayne Culp   [ updated Jan 15, 2012, 11:09 AM by Wayne Culp ]


1-5 of 5

Ċ
Wayne Culp,
Nov 30, 2012, 3:21 PM
Ċ
Wayne Culp,
Jan 13, 2012, 3:23 PM
Ċ
p970.pdf
(1713k)
Wayne Culp,
Jan 2, 2013, 9:02 AM
Ċ
Wayne Culp,
Jan 13, 2012, 8:07 PM
Comments