I should've sorted this out ages ago but ... care to answer a last minute US tax/education credit question?

April 14, 2008 3:44 PM

Egads! Last-Minute-(US)Tax-Question-Filter: Can a person generally claim the "Qualified Payments" as listed on their 1098-T form (sent from the university in addition to a W-2) towards an education credit? Or only the amount that they themselves paid, rather than the amount that was paid on their behalf by the university as part of their whole assistantship package?

I know you're not my accountant and of course this isn't "official" tax advice, but suddenly I'm getting cold feet in terms of what I believe I can or cannot claim on my US Federal Income Tax for the year. I've read the IRS's Publication 970 (Tax Benefits for Education) but it still isn't clear to me and so I was hoping maybe someone else has figured it out for themselves and would be willing to share, or at least to reassure me that I won't wake up tomorrow surrounded by IRS commandos. So here goes:

My university sent me a 1098-T form, where Box 1 lists "Qualified Payments" as X dollars, and Box 5 lists my Scholarships/Grants as Y dollars. Those scholarships were a little bit less than my total "Qualified Payments" (or tuition), so every bit of them went to paying my tuition. Should I, therefore, claim the "Qualified Payments" amount as an educational tax credit? Or only the part I paid out of pocket (X - Y = Small Out of Pocket Amount)?

Looking at the eligibility requirements for the Lifetime Learning tax credit, it indicates (unless I'm grossly misunderstanding it) that any money that is paid towards my education, whether by me or someone else, can be claimed by me as a tax credit so long as that "someone else" doesn't claim it on -their- taxes. I'm assuming that this applies even if that someone else is the university itself so I think I'm okay in claiming this - but again, I don't want to misstep simply because I misunderstood the terms of the credit. Looking at my 1098-T, though, it does say "Summary of Educational Tax Credit Transactions" directly above the by-semester listing of my spring and fall tuition, so I'm assuming/hoping I'm on the right track here.

The difference in my refund between taking this credit with the full 'Qualified Payment' amount or not is somewhat large (at least for a very broke student like me!), so of course I would really like to take it if I could - so long as it's 100% legal, which is why I just want to double-check that my understanding of the matter is right. Again, I know this isn't official advice, but if someone could either raise the red flag for me if I -am- doing things wrong, or give me a tentative thumbs-up if I'm right in thinking I can claim my Qualified Payments as a tax credit, I would be most grateful either way!

(next year I'm going to go to a professional, AND I'm going to do it long before my taxes are actually due ... honest and for truly!)

posted by zeph to Law & Government (4 answers total)

Best answer: It depends on whether you're paying income tax on the assistantship money that went to pay your tuition and fees. From Pub. 970:

If you pay qualified education expenses with certain tax-free funds, you cannot claim a credit for those amounts. You must reduce the qualified education expenses by the amount of any tax-free educational assistance and refund(s) you received.
Tax-free educational assistance. This includes:

The tax-free parts of scholarships and fellowships (see chapter 1),

So if you're paid a stipend, and get a W-2 for that money, and report it on your tax return, and use those dollars to pay your tuition, then you can use it towards an education credit.

When I was in school, I determined that the numbers on the 1098-T they gave me were completely useless in preparing my tax return.
posted by Dec One at 3:58 PM on April 14, 2008 [1 favorite]

Best answer: I am not an accountant, but I am a grad student who went to a grad student tax preparation workshop last year. They told us basically what Dec One just said--money paid on your behalf that you did not pay taxes on does not count for the life time learning credit. Sorry.

The good news is that you made so little money last year you'll probably still get a refund.
posted by hydropsyche at 4:21 PM on April 14, 2008 [1 favorite]

Response by poster: Ah, thanks very much, both of you, for clearing that up - much as I was hoping otherwise, in retrospect I suppose the idea that I could claim a tax credit on money I didn't have to pay taxes on was way too good to be true. Definitely a bummer, but way way less of a bummer than it could have been had I claimed it inappropriately!

Thanks again!
posted by zeph at 4:50 PM on April 14, 2008

I'd used the "(X - Y = Small Out of Pocket Amount)"

Assuming X = Qualified Payments and Y= Scholarships/Grants. That was how I read the various IRS publications on this issue, but I'm not an accountant or anything.
posted by salvia at 9:11 AM on April 15, 2008