How to tell if Employer Provided Tuition Assistance is included in W-2.

[HopeS]

Not everyone qualifies for the credit. You might not qualify if your tuition on box 1 is less than box 5 (scholarships). 

There are various factors that determine whether or not you qualify.

Please review the guidance previously provided. Also, complete the IRS Interactive Tax Assistant below to see whether or not you qualify.

Eligible to Claim Education Credit.

@USER 4926821 

[Hal_Al]

I'm hearing that the school put the entire amount of the employer reimbursement (about $12,000) in box 5 of the 1098-T,  because that's what they received.  That's wrong, because only $5250 was tax free assistance.   Now you have to make an adjustment. The simple thing to do is just enter $5250 in box 5 when you enter it in TT. Keep good records in the unlikely case that you get audited. 

[weatherfan1996]

Hi @Hal_Al ,

I have a similar situation to the hospital example provided by another user and I have a few questions…

In 2021, I paid $9000 in tuition and fees (reported on 1098). This was the only year of recent education (obtained masters degree). I received two employer tuition reimbursements: one in 2021 for $4180, the other in January 2022 for $4530. None of these tuition reimbursements appear on my W-2s for either 2021 nor 2022. I took the lifetime learning credit in 2021 and received a credit amount of $964. For 2022 taxes, I calculated $906 in education credit recapture tax. After filing my 2022 taxes, I received a check from the IRS in the exact amount of $906, presumably a refund of the recapture tax. The subsequent letter from the IRS stated I had overpaid taxes. I have cashed this check and set aside the money.

My questions are…

A. The two tuition reimbursements from my employer are both tax free because I received each of them in separate tax years and each reimbursement is under the $5250 threshold, correct?

B. Because I received the 2022 reimbursement that was for 2021 tuition, I must re-calculate the lifetime learning credit and pay education recapture tax, right?

C. If the answer to B is yes, what should I do with a $906 I received from the IRS after I filed my 2022 taxes? Should I keep it or should I use the online IRS system to pay it back?

Thanks in advance for your help!

[Hal_Al]

EDITED 3/18/23 

Apparently you did it correctly. 

See page 27 at https://www.irs.gov/pub/irs-pdf/p970.pdf and page 32 at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Filing an amended return, isn't necessarily "wrong". But, you can avoid interest and openly if you can get the IRS to accept your 2022 return, as submitted. I would try calling the IRS at the number on the letter.

Q. The two tuition reimbursements from my employer are both tax free because I received each of them in separate tax years and each reimbursement is under the $5250 threshold, correct?

A. Correct.

Q. . Because I received the 2022 reimbursement that was for 2021 tuition, I must re-calculate the lifetime learning credit (LLC) and pay education recapture tax, right?

A. Half right. You must re-calculate the lifetime learning credit. But, this is not a recapture situation. You do not report anything  on your 2022 tax return.   

Q.  If the answer to B is yes, what should I do with a $906 I received from the IRS after I filed my 2022 taxes?  Should I keep it or should I use the online IRS system to pay it back?

A. Keep it.  The IRS was correct to refund it to you, as your 2022 return was technically erroneous.  You must prepare an amended 2021 tax return, eliminating the LLC,  and send them a new check.

How to amend https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

I'm curious. How did you report the $906 on your 2022 return? What form, what line?

[weatherfan1996]

Thank you @Hal_Al for the quick reply.

Admittedly, I used H&R Block software. It did not require me to fill out any supplemental forms/worksheets for the recapture.  It only asked me to put the calculated tax on the "Education Recapture" line within the Additional Taxes section. It did put "ERC $906" text at the top of Page 2 of the 2022 1040.

Regarding amending the 2021 tax return, would I now have to pay penalties and/or interest because I have to write them a check? For context, I had a refund of $3,069 (includes Lifetime Learning Credit) on the original 2021 1040.

[Hal_Al]

For an amended return, you do not calculate interest and penalty. The IRS will bill your separately for those, after they receive your amended return. You just include a check for the difference in the calculated tax, which should be $906. 

[Hal_Al]

I did a little more research.  Apparently you, and the HRB software, did it right.

See page 27 at https://www.irs.gov/pub/irs-pdf/p970.pdf and page 32 at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Although, it is, apparently, a rare situation. 

Filing an amended return, isn't necessarily "wrong". But, you can avoid interest and penalty if you can get the IRS to accept your 2022 return, as submitted. I would try calling the IRS at the number on the letter.

[weatherfan1996]

Thanks @Hal_Al for the follow up; glad to know I wasn't crazy with the recapture! 😄 I will contact the IRS to see if they can accept my 2022 return as originally submitted and pay back the check received.

Edit: grammar and spelling.

[Catldavis]

I have a question concerning the LLC, Turbo Tax is allowing it when I answer all of the questions, but I want to make sure I'm eligible to claim it. My employer reimbursed me for all of the tuition as found on the 1098. However, it appears a portion was added as income in Box 1 with a note between section 1 (income) and 2 (my information) on the W-2 in the blue section (earnings summary) that states, "Note - fringe benefits included: FRINGE BENEFITS $3,966.00."  This amount plus the $5,250 equals the amount on the 1098 and my employer states the $3,966 is indeed for the tuition reimbursement. Can I claim the LLC for 2022?

[Hal_Al]

"Note - fringe benefits included: FRINGE BENEFITS $3,966.00."  This amount plus the $5,250 equals the amount on the 1098 and my employer states the $3,966 is indeed for the tuition reimbursement.

Q. Can I claim the LLC for 2022?

A. Yes, But, you may only count $3966 when you calculate the LLC.

$5250 of the total $9216 was a tax free benefit to you.  As such, that $5250 may not be used in calculating the LLC.  The other $3966 you paid tax on.  So even though your employer considers it as a fringe benefit, the IRS considers that as your (after tax) money. 

[Catldavis]

Thank you for the info Hal_Al. I’m obviously using Turbo Tax to calculate the LLC. Do you know where I would find the input for the LLC? I put the $5250 under the employer provided assistance, is there somewhere else?

[Hal_Al]

Usually, your 1098-T would have  all the tuition paid ($9216) in box 1.  If you put the $5250 under the employer provided assistance, that's all that is needed.  TT should use the difference to calculate the LLC.

The school may or may not have put some or all of the $9216 your employer actually paid in box 5 of the 1098-T.  In that case you have to use a workaround.  I would leave box 5 blank, when you enter the 1098-T.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit . 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit,  based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2022 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.