Understanding the 1098-T Form: An In-Depth Guide
If you’re a student or someone who has paid qualified tuition and related expenses to an eligible educational institution, then you might have received a 1098-T form from that institution. This form is essential when it comes to claiming educational tax credits and deductions, but it can be quite intimidating to understand, especially if you’re not familiar with tax forms. To help you out, this article will provide an in-depth guide on what the 1098-T form is, what information it contains, who receives it, and how to use it for tax purposes.
What Is a 1098-T Form?
Essentially, a 1098-T form is a tuition statement that eligible educational institutions are required to provide to their students or whoever pays the student’s qualified tuition and related expenses. This form reports the student’s enrollment and financial transactions for the calendar year, including the amount of tuition and fees paid (or billed), scholarships and grants received, and whether the student was enrolled at least half-time in a degree or certificate program.
The purpose of the 1098-T form is to help students or their parents/guardians claim educational tax benefits such as the American Opportunity Credit, Lifetime Learning Credit, or Tuition and Fees Deduction. These tax credits and deductions can help offset the cost of tuition, fees, and related expenses incurred by students or their families and reduce the amount of federal income tax owed.
What Information Does a 1098-T Form Contain?
A 1098-T form contains several pieces of information that are crucial for claiming educational tax benefits. These include:
– The student’s name, address, and taxpayer identification number (TIN)
– The name, address, and TIN of the educational institution issuing the form
– The amount of qualified tuition and related expenses paid or billed to the institution during the calendar year
– The amount of scholarships and grants received by the student during the calendar year
– Whether the student was enrolled at least half-time in a degree or certificate program
– Whether the expenses reported are for the academic year or calendar year
It’s important to note that a 1098-T form does not report all payments or loans made to an institution. For instance, it does not include amounts paid for room and board, transportation, health insurance, or any other personal expenses. Also, it does not include loans taken out to pay for qualified tuition and related expenses, as those are not considered income to the student.
Who Receives a 1098-T Form?
Generally, eligible educational institutions must send a 1098-T form to all students who were enrolled for any credit-bearing course during the calendar year and who paid qualified tuition and related expenses or received scholarships and grants during that same period. Institutions are not required to issue a 1098-T form if the total amount of scholarships and grants received by a student is greater than the total amount of qualified tuition and related expenses paid.
However, there are some exceptions to these rules. For instance, the following students are not required to receive a 1098-T form:
– Nonresident alien students
– Students whose tuition and related expenses are entirely waived or paid entirely through gift aid (e.g., Pell grants, veteran’s benefits, employer-provided assistance), or out-of-pocket expenses paid by a third party, such as a parent
– Students who only took non-credit courses or audited courses
– Students whose tuition and related expenses were paid by a third party (e.g., employer, government agency)
It’s worth noting that just because you don’t receive a 1098-T form doesn’t mean you’re not eligible for educational tax credits or deductions. You can still obtain the necessary information by contacting your educational institution’s financial aid office or by keeping your receipts and billing statements.
How to Use a 1098-T Form for Tax Purposes
Once you have received a 1098-T form, you can use it to claim educational tax benefits on your federal income tax return. There are three primary tax credits and deductions you could be eligible for: the American Opportunity Credit, the Lifetime Learning Credit, and the Tuition and Fees Deduction.
Here’s how to claim each of these benefits using a 1098-T form:
1. American Opportunity Credit
The American Opportunity Credit (AOC) is a tax credit for qualified education expenses that is available to eligible students for the first four years of postsecondary education. To claim the AOC, you need to satisfy the following criteria:
– You, your spouse, or your dependent must have been enrolled at least half-time in a degree or certificate program leading to a recognized educational credential at an eligible institution.
– You, your spouse, or your dependent must not have completed the first four years of postsecondary education before the beginning of the tax year.
– You, your spouse, or your dependent must not have claimed the AOC or the former Hope Credit for more than four tax years.
The AOC can be claimed for up to $2,500 in qualified education expenses per eligible student per year. Qualified expenses include tuition, fees, and course materials required for enrollment or attendance. The credit is calculated as 100% of the first $2,000 in qualified expenses plus 25% of the next $2,000 in qualified expenses.
To claim the AOC, you’ll need to use IRS Form 8863, Education Credits, and report the amount of qualified education expenses paid and scholarships or grants received during the tax year. You’ll also need to attach the Form 1098-T issued by your educational institution to your tax return.
Note that if your scholarships and grants exceed your qualified education expenses, you won’t be able to claim the full amount of the AOC. Also, if you’re claimed as a dependent on someone else’s tax return, you won’t be eligible for the credit.
2. Lifetime Learning Credit
The Lifetime Learning Credit (LLC) is a tax credit for qualified education expenses that is available to eligible students, including those who are not pursuing a degree or certificate program. To claim the LLC, you need to satisfy the following criteria:
– You, your spouse, or your dependent must have been enrolled in one or more courses at an eligible institution.
– You, your spouse, or your dependent must not have completed four years of postsecondary education before the beginning of the tax year.
– You, your spouse, or your dependent must not have claimed the LLC or the former Hope Credit for the same student in any two previous tax years.
The LLC can be claimed for up to $2,000 in qualified education expenses per tax return. Qualified expenses include tuition, fees, and course materials required for enrollment or attendance. The credit is calculated as 20% of the first $10,000 in qualified expenses.
To claim the LLC, you’ll need to use IRS Form 8863 and report the amount of qualified education expenses paid and scholarships or grants received during the tax year. Again, you’ll also need to attach the Form 1098-T issued by your educational institution to your tax return.
Note that the LLC is non-refundable, which means it can only reduce your tax liability to zero. Also, you can’t claim both the AOC and the LLC for the same student in the same tax year.
3. Tuition and Fees Deduction
The tuition and fees deduction (TFD) is a tax deduction for qualified education expenses that is available to eligible students and their parents. To claim the TFD, you need to satisfy the following criteria:
– You, your spouse, or your dependent must have been enrolled in one or more courses at an eligible institution.
– You, your spouse, or your dependent must have paid qualified education expenses during the tax year.
– You cannot claim the AOC, the LLC, or any other education tax credit or deduction for the same student in the same tax year.
The TFD can be claimed for up to $4,000 in qualified education expenses per tax return. Qualified expenses include tuition and fees required for enrollment or attendance. Unlike the AOC and the LLC, scholarships and grants reduce the total amount of qualified education expenses before calculating the deduction.
To claim the TFD, you’ll need to use IRS Form 8917, Tuition and Fees Deduction, and report the amount of qualified education expenses paid during the tax year. Again, you’ll also need to attach the Form 1098-T issued by your educational institution to your tax return.
Note that the TFD is an “”above-the-line”” deduction, which means you can claim it even if you don’t itemize your deductions. Also, the TFD is set to expire after tax year 2020 unless Congress extends it.
Conclusion
In summary, a 1098-T form is a tuition statement that reports the student’s enrollment and financial transactions for the calendar year. This form is critical for claiming educational tax benefits such as the American Opportunity Credit, Lifetime Learning Credit, or Tuition and Fees Deduction. To use a 1098-T form for tax purposes, you need to understand what information it contains, who receives it, and how to claim the educational tax credits and deductions you’re eligible for. By following the guidelines outlined in this article, you can maximize your tax benefits and save money on your federal income tax bill.
Understanding Form 1098-T
Form 1098-T is an Internal Revenue Service form that is entitled “Tuition Statement.” It is used by the IRS to determine whether an individual can claim any tax credits relating to education. These can include the Lifetime Learning Tax Credit along with the American Opportunity Credit.
From 1098-T is used by any eligible educational institution, such as a university or college, in order to report information about the students the Internal Revenue Service.
This is required under the Taxpayer Relief Act of 1997, which states that these educational institutions have to file informational returns that show the student’s enrollment, academic status, name, address, and tax payer identification number.
As of 2003, these institutions must also provide the amounts relating to tuition and related expenses along with other grants and scholarships that may have been awarded. The purpose of this is to potentially alert students other federal income tax credits related to education that the student may be eligible for.
If a student receives Form 1098-T, it means in the previous calendar year, he or she was billed for qualified tuition or other educational related expenses. These amounts are determined by a taxpayer’s records.
For Form 1098-T, qualified tuition and other related expenses include:
• Undergraduate and Graduate tuition
• Assessment fees
• Student fees
They do not include:
• Application fees
• Resident hall charges
• Diploma fees
• Transcript fees
• Text books charges at official college/university bookstore
Form 1098-T must be filed for each student enrolled in an eligible institution. These institutions include vocational schools, universities, colleges, or other postsecondary institutions as described in the Higher Education Act of 1965 Section 481. Furthermore they must be eligible for the student aid programs from the Department of Education.
However, Form 1098-T does not have to be filed if:
• Student is a nonresident alien (although it can be requested by the student)
• Classes do not have any academic credit, even if student is enrolled in a degree program
• Students have grants or scholarship that waive qualified tuition and expenses
• Student does not maintain separate financial account and has a formal billing arrangement between government entity or student employer and the institution
Form 1098-T can be received both electronically by educational institutions. In order to fill out Form 1098-T, it will require the following information:
• Payments received and amounts billed for qualified tuition and other related expenses
• Adjustments made in the previous calendar year
• Grants or scholarships administered and processed
• Adjustments to grants and scholarships
• Amount during the academic period
• Status as a half-time student or a graduate student
• Insurance contract refunds or reimbursement
