There's nothing easy in taxes.There may or may not be a notation in box 14 about the reimbursement. You could compare your year end wage statement to your W-2. You may just have to ask your employer.
By law your employer can only give you $5250 maximum, tax free. If your tuition was less than that, and you employer reimbursed it all; it’s safe to assume it does not need to be reported. You do not even need to enter your 1098-T. You have nothing to claim.
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 anything additional on your tax return. Since you have essentially paid tax on that part, it is considered your after tax money and that amount can be used to claim the tuition credit.
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TAX LOOP HOLE for this situation
Usually, you may not claim a tuition credit for expenses paid (or reimbursed ) by tax free money (e.g. scholarships, grants, VA benefits or employer reimbursement). Employers are allowed to reimburse employees up to $5250 tax free. Anything over that is taxable and included as taxable income on your W-2. So, any expenses over $5250, including books, may be used to claim a tuition credit.
But, you have a choice (actually a tax loop hole). You may choose to include any of the $5250 (normally tax free) reimbursement as taxable income. Since taxed income is considered your money, you can use that amount to claim the education credit.
It may get a little complicated reporting the now taxable reimbursement correctly. It's best explained by example. Lets say you paid $6000 in tuition, in 2016, and use $4000 of that to claim the tuition credit ($4000 is all you need to get the maximum amount of credit on the American Opportunity Credit).
Your employer reimburses you $6000. On your 2016 W-2, he shows $5250 (the maximum allowed) of tax free educational reimbursement and $750 of taxable reimbursement. $750 will have already been included in box 1 of your W-2 as taxable income. You now have to report $3250 (4000-750) as additional taxable income on your 2016 return. $3250 goes on line 21 of form 1040 as "Taxable Reimbursement". TurboTax can not automatically pull that from your w-2. You have to enter it manually. In TurboTax enter at::
Federal Taxes Tab
Wages and income
Scroll down to:
--less common income
---Misc Income, 1099-A, 1099-C..... (Press start)
----On the next screen, select Other reportable income
-----Two screens in, type Tuition reimbursement and $3250
Alternatively (using the numbers in the example), you can use only $750 to claim the tuition credit in 2016. "How do you fill out the 1998-T?" You enter the 1098-T, exactly as shown. Later, in the education interview, you will be asked if you got any employer reimbursement.
Can you use this loophole if the employer has paid the university directly as a tuition benefit? My employer paid $3246 as tuition benefit and $1640 as employer scholarship. These payments were paid directly to the university to cover my tuition expense. Can I report these payments as taxable income and then take the American Opportunity Credit?
@Beatlesnow - No. You cannot do that if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses. Effectively that is what has happened with your employer's payment going directly to the school.
My employer provided me with checks to reimburse me for my tuition. Can I use this loophole? The total my company paid was $1,041.
Q. My employer provided me with checks to reimburse me for my tuition. Can I use this loophole?
A. Probably not. It's only applicable if the reimbursement is in a different year than you paid the tuition.
Related to this topic, is there a way to claim back imputed income that was withheld by my employer for my education? Here's the scenario. My employer paid approximately $16,000 for my tuition this year. After they hit the $5250 threshold, they started withholding imputed income from my paycheck. I ended up having around $5700 withheld from my paychecks over the course of the year, like so:
Fees paid by employer in calendar year 2020: $21,000
Fees subject to Imputed Income Tax: $21,000 - $5,250 = $15,750
Estimated tax: $15,750 X 36.25% = $5709
Is there any way to claim back all or part of that $5709 which came out of my paychecks? According to a quiz type thing I took on the IRS website, my coursework meets the criteria for "job related." It's not a requirement of my job, but it will help me in my current job and can help me advance. I'm in a graduate program, if that info is helpful as well. Thanks! @Hal_Al
Q. Is there any way to claim back all or part of that $5709 which came out of my paychecks?
A. Yes, to part. Almost certainly no to all.
The $5709 withholding is included in box 2 of your w-2 (unless that amount also include FICA) and will be credited to your calculated income tax.
If your coursework meets the criteria for "job related", your employer was not required to include it as imputed income (he treats it as job training, not education reimbursement). That's a determination they have to make. Once it's included on your W-2, you cannot claim it as a deduction, on your tax return. Your only chance is to get your employer to give you a corrected W-2.
I have a related question. My employer reimbursed me $9,000 for my grad school - $3,750 was taxed so I did not get the full amount. Can I deduct the taxed amount ($3,750*25%=$937.5) as tuition credit/deduction since I had to pay out of pocket for that portion?
Q. Can I deduct the taxed amount ($3,750*25%=$937.5) as tuition credit/deduction since I had to pay out of pocket for that portion?
A. Yes, but not exactly like that.
It's actually better. You may use the full $3750 to claim either a tuition credit or the Tuition and Fees deduction. The credit is usually better, but TurboTax will make that decision for you (you can override it). You can do that because the tuition was essentially paid with YOUR after tax money.
Related question for super user @Hal_Al. I'm a teacher in rural Alaska. Our school district makes a deal with teachers to pay the University of Alaska directly for their continuing education, for example to add a special education credential, in exchange for the teacher's commitment to work for the district. The teacher must complete the program and then work for the district for X number of years, and then they don't have to repay anything. If they fail to complete the program, or decide not to work for the district for the required length of time after completing the program, then they have to repay the district, and sometimes with interest.
My question centers around if this is a "scholarship or grant" (1098-T box 5) or a loan. It seems to me it's a loan, which would make us eligible to use the full amount paid by the school district on our behalf to qualify for the lifetime learning or american opportunity credit. But when we get our 1098-T forms, the amount in box 5 matches the amount in box 1. I think the university assumes, since it's paid by our employer, that it's "free" money. And it might be forgiven down the road, or it might not be, depending on what happens in the future. Quite a few people do not end up fulfilling the service time requirement and have to repay (turnover is a huge problem here). Do you have an opinion on this? I know that the instructions to the university say that they should NOT include any loan payments in box 5.
That's a good question. I would think you point is substantial enough that's it's been addressed by more authoritative people than me. I would think you need to address that question to the people that administer the program.
That said, I think they're doing you a favor putting in box 5 of 1098-T so that you can call it a tax free scholarship. My reading of Pub 970 is that they should be imputing it as income on your W-2. From page 6:
"Example 2. You are a candidate for a degree at a medical school. You receive a scholarship (not under any of the exceptions mentioned above) for your medical education and training. The terms of your scholarship require you to perform future services. A substantial penalty applies if you don't comply. The entire amount of your grant is taxable as payment for services in the year it is received."
So if I had paid my tuition 2088 out of pocket. later that same year I had been reimbursed from my employer as a misc. reimbursement. Can I still use the loop hole?
The money given to me was not a scholarship or grant from the government. They did not get reimbursed from the government.
You may not have to pay tax on the money you received from your employer which was a reimbursement for your educational expenses. According to the IRS, if you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer shouldn’t include those benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2. This also means that you don’t have to include the benefits on your income tax return. However, you can’t use any of the tax-free education expenses paid for by your employer as the basis for any other deduction or credit, including the American opportunity credit and lifetime learning credit.
There are some requirements to keep in mind. For example, to qualify as an educational assistance program, the employer's plan must be written and must meet certain other requirements. Your employer can tell you whether there is a qualified program where you work.
Additionally, for your reimbursement to qualify as tax-free, the educational assistance you receive must be for expenses such as, tuition, fees and similar expenses, books, supplies, and equipment. Educational assistance benefits don't include payments for expenses such as meals, lodging, or transportation. In your case, you indicated the reimbursement you received was a tuition reimbursement, so it appears your reimbursement would be a qualified educational expense reimbursement.
Included below is a link to IRS Publication 970 that relates to educational benefits which you might find helpful.
There was no scholarship or grant involved a if i pay the taxes on it as if it was income would that qualify me to use the educational credit?
Also what about the tax loophole that @Hal_Al had previously talked about.
Q. So if I had paid my tuition 2088 out of pocket. later that same year I had been reimbursed from my employer as a misc. reimbursement. Can I still use the loop hole?
A. No. You can only do that if you were reimbursed in a different year.
That answer assumes your are getting tax free reimbursement of under $5250.
If your reimbursement is being treated as taxable income, you don't need a loop hole. After tax money is considered yours and you can claim the credit.
The reimbursement was a tax free reimbursement of 2088. How I am understanding is that if I file that reimbursement as a 1099 making it taxable income I can claim the credit.
No, I'm of the opinion, you can't to that. It's tax free reimbursement and you don't have the freedom to call it something else, if it's reimbursed in the same year. You can't file a 1099 you didn't actually receive.
Okay thanks. Doesn't really make sense to me. Whether you got in the same year or a different year wouldn't it all be taxed the same?
It's a technicality. In the different year scenario, you paid the tuition out of pocket and didn't get reimbursed by the end of the year. So, for that year you paid tuition with your money, so you get a deduction. The following year you get reimbursed. The tax rules say reimbursement for something deducted in a previous year must be treated as income.
My employer provided Tuition assistance of $5,250 and my full tuition was $10,902. I am a little confused on the question regarding Other tax-free assistance. The question is Enter the amount received. Don't include amounts already listed on a W-2 or other tax form. Of course the $5,250 is on my W-2, but only as part of Gross Income and was not taxed. Do I then enter this amount of $5,250 in the Employer-Provided Assistance section?