Education assistance from employer and school

[pkwhat]

I got scholarships from my school and education assistance from my employer.  Following are my scenarios:

1098-T:

Box 1 = 31743

Box 5 = 64743

W-2:

Box 1 shows        Tuition Reimbursement - Tax = 643.7

                               Tuition paid to school - Taxable = 17161

From Turbotax under section "---scholarships or grants":

[] Received tax-free education assistance from an employer

   Amount from employer = []

[] The aid was already reported as income on a W-2

   Amount reported as income on a W-2 = []

Please advise on what to fill out in this section.  Thanks in advance.

[Hal_Al]

The education section of TT is under going a major overhaul.  You may have to wait for the FEB 27 update to complete your taxes.  In the mean time, you need to get a handle on your numbers. 

By law your employer can only give you $5250 maximum, tax free tuition assistance. 

 If you got more than $5250, the amount above $5250 is usually already included in box 1 of  your w-2 and you do not need to enter any additional income on your tax return.  

But, since you have paid tax on that part, it  is considered your after tax money and that amount can be used  to claim the tuition credit. For tax purposes, it’s not really reimbursement, it’s your money.

So, did you really get $22,411 (5250 + 17,161) in tuition assistance?  How much of that is included in the $64,743 shown in box 5 of the 1098-T?  Some schools include employer assistance in box 5, some do not.  You may have to make some adjustments to your 1098-T.  You don't want to double report employer assistance and don't you want the tax paid portion treated as scholarship. 

Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free.  Scholarship amounts that exceed QEE is taxable income, on the student’s tax return. Room & board are not QEE.

If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will usually treat the difference as taxable income, unless you enter additional QEE at books and other expenses.

[Hal_Al]

There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. The student reports all his scholarship, up to the amount needed to claim the American Opportunity Credit (AOC), as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this  if the conditions of the grant are that it be used to pay for qualified expenses.

Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.

Books and computers are also qualifying expenses for the AOC. So, extending the example, the student had another $1000 in expenses for those course materials, paid out of pocket. She would only need to report $5000 of taxable scholarship income, instead of $6000.

The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970 even has examples of how to do the “loop hole”.

For purposes of the loop hole, tax free employer assistance (the $5250) cannot be treated as "scholarship".  That is, it is considered restricted and must be applied/allocated to tuition. 

[pkwhat]

Hi,

It looks like my employer already paid my tuition in full (Tuition = 31743) and they also collected after-tax deductions from my paychecks.  I'm struggling on what to do with questions below:

 1)  Do I click on "Received tax-free education assistance from an employer,...".  If I do click on it, then what amount should I enter here?

2)  Do I click on "The aid was already reported as income on a W-2...".  If I do click on it, then what amount should I enter here?

3) Box 5=64743, Box 1=31743

    Is the difference from Box 5 and Box 1 considered additional income?  If yes, how do I report that difference on 1040?

Thanks

[RobertB4444]

1) As @Hal_Al already pointed out, your tax-free assistance maxes out at $5250.  The rest of the tuition that your employer paid should be on your W2.  So click yes on the tax free tuition and enter $5250.

2) You'll click on that and enter the amount that you received on a W2.  If you didn't get a W2 you won't click this.

3) When you enter the 1098-T into the TurboTax system it will automatically enter any excess paid to you over and above your school expenses as taxable scholarships and carry it over for you.  That is why @Hal_Al recommended making sure that there were no amounts in the $64,743 that is on your 1098-T that are included on a W2 that you received.

[pkwhat]

Thank you for your answer on Question 1 & 2. 

Another question regarding the after-tax deductions ($5887 total) that were collected by my employer.  Since this is my after-tax money, how can I claim it as the tuition credit in TurboTax?  Al mentioned it previously on his reply but I'm still confused on what to do with this.

[Hal_Al]

What does "the after-tax deductions ($5887 total) that were collected by my employer" mean? Is $5887 the amount of reimbursement over $5250?  Earlier you indicated the amount was $17,161. 

Or is that the amount of  federal tax was withheld from your pay for the excess reimbursement  over $5250?  Earlier you indicated the amount was $643.70. Something else.

In another place, you said "my employer already paid my tuition in full (Tuition = 31743). That would indicate the taxable amount is 31,743 - 5250 = $26,493

To answer your question, we need  clarification of your numbers. Did you  get $22,411 (5250 + 17,161) in tuition assistance?  How much of that is included in the $64,743 shown in box 5 of the 1098-T?  Even if it was, the scholarship provided by the school was still more than the tuition, so you're not eligible for any tuition credit. In fact, it appears that some ($10,589 quick calculation) of the school provided scholarship is also taxable.  See "loop hole" explanation, above, for how you can still claim a credit. 

[pkwhat]

Al's question:

What does "the after-tax deductions ($5887 total) that were collected by my employer" mean? 

Answer:

$5887 is the total amount of after-tax deductions that my employer withheld from my paychecks in 2025.  They collected the taxes exceeding $5250 (max tax-free).  They prepaid my taxes every quarters and then collected these taxes back from my paychecks throughout the year.  BTW, $5887 is not itemized in W-2; it's the total after-tax deductions from all paychecks.

Al's question:

Is $5887 the amount of reimbursement over $5250?  Earlier you indicated the amount was $17,161. 

Answer:

No, $5887 is the total after-tax amount withheld from my paychecks (See above for explanation).

$17,161 is the "Tuition paid to school" that is included in Box 1 of W-2 (There is also Tuition Reimbursement = $643.7, but I don't understand what this is).  However,  Full Tuition = $31,743, that would indicate the taxable amount is 31,743 - 5250 = $26,493.  That's why I'm confused on whether to enter $17,161 or $26,493 into the place "Amount reported as income on a W-2".

 Al's question:

Did you get $22,411 (5250 + 17,161) in tuition assistance?  

Answer:

No, I got 31,743 from my employer.

[Hal_Al]

 Q.   I'm confused on whether to enter $17,161 or $26,493 into the place "Amount reported as income on a W-2". 

I can see why.   Based one thing, I'm hearing, it's $26,493 (the 31,743 they paid less the 5250 tax free part). But, then you say $17,161 is the "Tuition paid to school" that is included in Box 1 of W-2. Is it possible that the $14,582 difference (31,743 - 17,161 = 14582) will be included on your 2026 W-2?  Then you should use 17,161.

What's the explanation for the $64,743 in box 5 of the 1098-T? Did you get another $33,000 scholarship from the school, in addition to the $31,743 from your employer? It sounds like they both paid your tuition.  I looks like you  got $33,000 from the school and $5250 tax free from your employer; $38, 250 total. That's more than the $31,743 tuition, so you're not eligible for a tuition credit. It looks like you may even have $6507 (38250 - 31743 = 6507) of taxable scholarship to report.  

See "loop hole" (item #4) at this post on the five main points on the  1098-T:

https://ttlc.intuit.com/community/college-education/discussion/re-what-do-i-do-with-form-1098t/01/37...