1098-T and employer paid tuition to university

[maddie10543]

Hello. I was entering my 1098-T information and was directed to a screen with two check boxes (a screenshot is attached below). 

One is asking if I received tax-free education assistance from an employer, the other is asking if the aid was already reported as income on my W2. If either of these boxes is checked, a follow-up question appears asking for the amount to be entered. My employer pays tuition directly to the university. They paid more than the allotted $5,250 for tuition, so the tax was taken out of my paycheck. The only two boxes filled in on my 1098-T are box 1 and box 5. Box 1 has the amount $7,842.00, and box 5 has the amount $2,125.00.

Do I need to check either of the boxes prompted? If yes, what is the amount that should be entered? 

[Vanessa A]

Yes.  You will need to check both of the boxes since you did receive tax free tuition and did have an amount included in box 1 of your W-2.  The amount your employer paid up to the $5,250 would qualify for the tax free portion.  The amount over the $5,250 would be taxable income and that is what should be included on your W-2.  So for the next screen you should enter the $5,250 for the tax free assistance and then the amount you received from your employer over the $5,250 that was included in the W-2 as the income already reported.  It is a good idea to check with your employer to be sure that is how they did handle the tuition payment. 

What this means for you and any type of education credit  you would otherwise qualify for, is that the amount your employer paid that was above the $5,250 DOES qualify to be counted towards an education credit since you already paid taxes on that amount.   
 

 Lifetime Learning Credit

American Opportunity Tax Credit.

[Hal_Al]

The school should not have included any of the employer assistance in box 5 of the 1098-T. But some mistakenly do.  Since box 5 is less than $5250, I assume the $2125 was a separate scholarship from the employer assistance. 

Do check the box received tax free assistance,  Do not check the other box (already included on W-2).  Then enter $5250 when asked the tax free amount.   If the $2125 was the employer assistance over $5250, then you do it differently. 

$7842 - 5250 - 2125 = $467.  You only have $467 of qualified expenses for the tuition credit.  If the $2125 was an unrestricted scholarship, you have the option of declaring that taxable and freeing up $2125 of tuition for the tax credit.  You don't have that option for the $5250.