What is Form 1098-T?
Form 1098-T is an important tax document for college students and their families, but it’s often misunderstood. Issued by colleges and universities each year, this form helps taxpayers determine whether they qualify for valuable education tax credits. Understanding what information Form 1098-T includes, and what it leaves out, can make a significant difference when filing your tax return and maximizing available education-related tax benefits.
Key Takeaways
Form 1098-T reports tuition and related education expenses, but not all costs. Although Box 1 shows qualified tuition and fees billed by the school, it does not include expenses such as housing, meals, transportation, or books purchased outside the institution.
The form helps determine eligibility for education tax credits. Students and parents use Form 1098-T to assess eligibility for the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC).
The numbers on Form 1098-T may not tell the whole story. Scholarships, grants, and private funding may need to be adjusted when calculating qualified expenses.
What is Form 1098-T?
Form 1098-T is an informational tax form sent by colleges and universities to their students each January. It’s a tuition statement that reports qualified education expenses paid by the student (Box 1) during the tax year. The form also includes the school’s contact information, the student’s tax ID (SSN or TIN), and the student’s enrollment status. If the student received any scholarships or grants, these are also included in Box 5.
It’s important to note that institutions are not required to send this form if a student’s tuition is fully covered by scholarships or paid by an employer. Non-resident aliens are also excluded from receiving a 1098-T.
Who Uses Form 1098-T?
Students, as well as parents and guardians, use Form 1098-T to determine eligibility for educational tax credits. This includes the American Opportunity Tax Credit (AOTC), as well as the Lifetime Learning Credit (LLC). Parents can claim an education tax credit if the student is claimed as a dependent on their return. Only one eligible credit may be claimed per student, and only one person (student or parent) may claim the credit on their return.
A parent may be eligible to claim more than one tax credit on their return. If they have multiple dependent children in college or are enrolled themselves as students, they could claim an educational credit for each.
Important Considerations
Form 1098-T is a great starting point for determining eligibility for both the Lifetime Learning Credit and the American Opportunity Tax Credit. It’s important to note, however, that the amounts on the form may differ from what you actually paid (or received) throughout the year.
Be sure to compare amounts paid with tuition statements and other receipts. For example, any required books and tools purchased outside the school will not be included on your 1098-T (Box 1).
If you received private scholarships that were not deposited with the school but paid directly to you, these will also need to be added to the amount recorded in Box 5.
How To Calculate Qualified Expenses
You can use Form 1098-T to calculate the total amount of qualified expenses you were billed during the tax year by doing the following:
- Take the amount in Box 1 and add any qualified expenses that were not paid directly to the school to the amount. This may include books, supplies, and equipment bought on Amazon or other retailers.
- Subtract the amount in Box 5 from the total amount in step 1. Be sure also to subtract any private funding (scholarships/grants) paid directly to you.
Do not include any amounts paid for housing, meals, or transportation in step 1.
If the amount of qualified expenses in step 1 exceeds the amount received in scholarships and grants, you are eligible to claim the AOTC or LLC, as long as you meet all other criteria.
If the amount in Box 5 is greater than all qualified expenses, the excess amount is taxable, and you are ineligible to take educational tax credits. You can, however, voluntarily declare a larger portion of your scholarship money as taxable income to create “out-of-pocket” expenses and still claim a credit. Since the AOTC is refundable, this may be more beneficial in the long run.
Final Thoughts
Form 1098-T is a valuable starting point for claiming education tax benefits, but it shouldn’t be the only document you rely on. Taking the time to review tuition bills, receipts, and scholarship information can help ensure your tax return is accurate and optimized for available credits. When used correctly, Form 1098-T can help students and families reduce their tax liability, and, in some cases, even receive a refund while staying compliant with IRS rules.