If the tuition waiver is reported, it needs to be applied to your education expenses. The expenses therefore cannot be used to apply for an education credit. The rules for determining if a tuition reduction is qualified,
and therefore tax free, are different if the education provided is below the
graduate level or is graduate education.
According to the IRS:
“If you receive a tuition reduction for education below the
graduate level (including primary, secondary, or high school), it is a
qualified tuition reduction, and therefore tax free, only if your relationship
to the educational institution providing the benefit is described below.
You are an employee of the eligible educational institution.
You were an employee of the eligible educational institution,
but you retired or left on disability.
You are a widow or widower of an individual who died while
an employee of the eligible educational institution or who retired or left on
disability.
You are the dependent child or spouse of an individual
described in (1) through (3) above.
Child of deceased parents.
For purposes of the qualified
tuition reduction, a child is a dependent child if the child is under age 25
and both parents have died.
Child of divorced parents.
For purposes of the
qualified tuition reduction, a dependent child of divorced parents is treated
as the dependent of both parents.
Graduate Education
A tuition reduction you receive for graduate education is
qualified, and therefore tax free, if both of the following requirements are
met.
It is provided by an eligible educational institution.
You are a graduate student who performs teaching or research
activities for the educational institution.
You must include in income any other tuition reductions for
graduate education that you receive.”
