Employer, school scholarship and I pay for tuition and fees can I claim deductions/credits?

[Alexandra17]

I am in a masters program where my employer (charter school network) and a university are working together to help develop teachers. I agreed to pay a portion ($5000 In the form of an interest-free loan from my employer over 4 years) and work for 4 years in exchange for the employer funding the rest of the masters degree.  Every paycheck a portion is withheld (post tax) to pay towards that $5000 (total withheld for 2019 was $1820). My university statements show that the class is being paid for partly by scholarship from the school and partly by my employer. my 1098t in box 1 shows 2550 and so does box 5 for scholarships, so nowhere does it show on the 1098t or the school statement the portion that I paid. My year end pay stub is and the loan agreement are the only reference I have for my out of pocket education costs. Can I claim a tuition deduction or LLC for my education loan payments to my employer? And if so, how? Any help would be greatly appreciated! 

[ThomasM125]

You can't claim the loan repayments as an education expense. However, you can claim all of the tuition and required fees as an education expense, regardless of who paid them to the college, to the extent you have to pay them back.

So, lets say in year one your tuition was $8,000 and $5,000 was paid for by your employer. Your education expense would start out at $8,000 for that year.

If the college paid for $3,000 of your education expenses, that would be scholarship income, so you would need to reduce your education expense by that amount to determine your net expense for the education credit.

So in this example, your net expense for the education credit would be $5,000, the amount of money you have to pay back to your employer.

[Alexandra17]

Thank you for the explanation, I think am better understanding the principle, but still am a little shaky. Can you also tell me how to reflect that in Turbotax? I entered the 1098t as written, is that correct? Or, instead, should I not enter the amount from box 5 on the 1098t entry form and instead under 

Expenses and Scholarships (Form 1098-T)> Did __ receive a scholarship or grant in 2019? select “Yes“ and enter the info from my university account statement for the scholarship from the school in Other scholarships/Grants/Fellowships and the amount my employer paid minus the portion withheld from my paycheck in the box for Employer-Provided Assistance? This year, (because I only took one class per semester), more money was withheld to pay the loan than paid from my employer to the university   can that be accounted for? Thanks

[Hal_Al · Accepted solution]

Let me see if I understand what you said: Your employer sent about $1820 to the school and the school gave you about $730 in scholarship, for a total of $2550.   The school doesn't realize that the $1820 is only a loan, so they've entered it in box 5 of the 1098-T as a scholarship. 

If that is correct, you have to use a work around in TurboTax (TT).  The easiest thing is to just change the box 5 amount to what the school scholarship amount is (+/-$730).  

Lying to TurboTax to get it to do what you want does not constitute lying to the IRS. 

The 1098-T is only any informational document. The numbers on it are not required to be entered onto your tax return.  You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.