1098T, Employee tuition waiver and lifetime learning credit

[ckruger]

Hello,

I work for a university and receive a 100 % tuition waiver for myself and my wife. We both took graduate courses, which I understand to be taxable. The tuition cost of my classes was below $5250, meaning it was covered tax free. However, my wife took more than than that, tuition costs being in the $7,000 range (I calculated a little less than the school, but its negligible, and maybe I don't understand what goes into the calculation such as fees, etc.).

Heres the rub: My 1098T states in box 1 $1964.50, and in box 5 $1864.5 (The $100 is for a class fee, this is not the problem). My wifes 1098T, however, in box 1 has $7,545, and nothing in box 5. My paystub has $5992.80 as "tax only non-cash," which started when we began using the tuition discount for grad school, so I assume it is related, if it helps.

When TT did the calculation, it qualified us for the lifetime learning credit. Which is great, I think we qualify for that. But is there a problem that my wife does not have anything in box 5? Do we still qualify to claim the lifetime learning credit? Please let me know if I can clarify or add anything else.

[KatrinaB48]

Yes, you qualify for the lifetime learning credit based on the $7,000 out-of-pocket expenses paid for your wife's tuition. However, you need to make sure that your wife is claiming the credit and not you. The maximum credit amount is $2,000 so it does not matter that the form 1098-t does not show anything in box 5.

[Opus 17]

A tuition waiver for your spouse who is not an employee, must be included in your taxable income.  The $5250 tax-free limit only applies to fringe benefits for employees, not the rest of their family. 

Assuming that the spouse's tuition waiver will be included in your box 1 taxable wages of your W-2 for the year it was paid (2019 or 2020), then you are paying the tuition with taxable money, the same as if your employer gave you a raise, taxed it, and then you spent the money on tuition.  As such, your spouse is eligible for the lifetime learning credit since the tuition was paid with after-tax funds. 

[ckruger]

Thank you for your response, this helped!