Employer tuition assistance

[carlosdpargas]

I have insurance through the market place. I estimated I was going to make around $19,000 when applying for my insurance, and I did, but I work for Target and they paid for my tuition for a coding bootcamp, which added almost 10,000 to my box 1 leaving the final amount to around $30,000. Now because of that I have to pay a lot of money back to the market place because they think I made more than what I actually made. Is there a deduction like the "American Opportunity Credit" or the "Lifetime Learning Credit" that I can apply for so it can lower my taxable income? ps: Target paid for the entire thing, and the money did not go through me, they paid the university (MSU Michigan State University) directly. Thank you so so so much for your answer, I hope I can do this because it would save me so much money.

[KrisD15]

Yes.

Since the education assistance was reported in Box 1 of your W-2, it is as if you were paid that 10,000, turned around and paid Michigan State University. 

It sounds like you were NOT pursuing a four year degree, so you would not be eligible for the American Opportunity Tax Credit, but you should be able to get the Lifetime Learning Credit.

I assume you did not get a 1098-T since the school may not think they are obligated to give you one (since the payments were made directly by Target) so you will need to contact the school or use your online school account to find the charges that were paid. You will also need the school's Employer Identification Number (EIN). 

The EIN for Michigan State University is 38-6005984

In TurboTax go to Deductions and Credits, Education, 1098-T

Select that you have a exception for not having a 1098-T

Enter your information on the 1098-T screen

DO NOT report the 10,000 as "employer assistance" if it was included in Box 1 of your W-2.

Please be aware, Target MAY HAVE paid 15,250 towards your education. 5,250 is allowed to be tax-free. You will need to know this when filling out the 1098-T screen. You can only use what you paid towards the credit. So, if the school says 15,250 was charged and paid in 2022, but you only had 10,000 added to your wages, you can only use 10,000 of the total expenses. 

If this is what Target did, the 5,520 tax-free assistance my be listed on your W-2 in Box 14 and TurboTax might carried that to the Education section. 

In other words, if MSU says they charged a total of 15,250 in 2022, and you only had 10,000 added to Box 1 on your W-2, make sure that 5,250 is subtracted from the total.

Pub 970

[carlosdpargas]

I contacted MSU and they said "the boot camp is a certificate program that does not meet the academic credit regulations required by the IRS for us to issue the 1098-T form". Does that mean I can't claim the Lifetime Learning Credit or I still can but I will have to input the information myself and opt of the "exception for not having a 1098-T"? Thank you so much for your help.

[KrisD15]

No, it does not mean you cannot claim an education credit. 

Yes, if they will not issue a 1098-T, you will need to enter the amount paid from your own records. 

Please make sure you are accurate as to what was paid. Keep copies with your tax file. 

For The American Opportunity Tax Credit, you would have needed to be attending as an "at least half time" student. 

If you are eligible for both (one OR the other) credits, the American Opportunity Tax Credit is usually more valuable. (Because it is REFUNDABLE, does not only lower tax, can also increase refund) 

According to the IRS:

“However, you may claim a credit if the student doesn't receive Form 1098-T because the student's educational institution isn't required to furnish Form 1098-T to the student under existing rules (for example, if the student is a qualified nonresident alien, has qualified education expenses paid entirely with scholarships, has qualified education expenses paid under a formal billing arrangement, or is enrolled in courses for which no academic credit is awarded). If a student's educational institution isn't required to provide Form 1098-T to the student, you may claim a credit without Form 1098-T if you otherwise qualify, can demonstrate that you (or a dependent) were enrolled at an eligible educational institution, and can substantiate the payment of qualified tuition and related expenses.”

“To claim the American opportunity credit, the student for whom you pay qualified education expenses must be an eligible student. This is a student who meets all of the following requirements. 

• The student didn't have expenses that were used to figure an American opportunity credit in any 4 earlier tax years. 

• The student hadn't completed the first 4 years of postsecondary education (generally, the freshman, sophomore, junior, and senior years of college) before 2022. 

• For at least one academic period beginning in 2022 (or the first 3 months of 2023 if the qualified expenses were paid in 2022), the student was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. 

• The student hasn't been convicted of any federal or state felony for possessing or distributing a controlled substance as of the end of 2022.”

“Generally, you can claim the lifetime learning credit if all three of the following requirements are met. 

• You pay qualified education expenses of higher education. 

• You pay the education expenses for an eligible student. 

• The eligible student is either yourself, your spouse, or a dependent you claim on your tax return.”

“Academic period. An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. If an educational institution uses credit hours or clock hours and doesn't have academic terms, each payment period can be treated as an academic period.”

Follow the Education Interview in TurboTax (make sure you go through the ENTIRE interview) ad the program will tell you if you are eligible for both and if so which one you should take. 

Pub 970

[carlosdpargas]

I am a little bit confused on what amount to put in. Target paid $11,495. Target took the $5,250 free of tax, and added the rest $6,245 to my earnings on my paystub as a gross up. 

My paystub says:

Tuition GU Offset       $-6,245.00

Tuition Gross Up        $ 8,877.04

It also says:

Earnings $2,632.04 

If I am not wrong the $2,632.04 is the taxes due on the amount I had left to pay ($6,245.00), so they are adding the gross up to pay for those taxes, but I did not receive that money.

So I am confused on why do I have to pay taxes on money that was left to pay taxes? Sounds like taxes on taxes to me. Because it was not like they deposit that money in my account so when I had to pay my taxes I could use that money.

But regardless, what amount should I use when applying for the learning credit?

Again, thank you so so so much for your help.

[carlosdpargas]

PS: On the Taxable Wages section of my paystub, the added the full $8,877.04 to it.

[KrisD15]

That doesn't really make sense unless Target PAID you the 2632.04. 

Target paid 11495 in tuition, 

Target gets a tax break for 5,250, which leaves 6,245 that you need to claim as income. 

Did Target ADD 2,632.04 as Earnings AND ADD 2,632.04 to your Federal Withholdings? 

That could make sense, it would be as if they paid you 2,632.04 but you never SAW it because they withheld it and sent it as Federal tax paid. 

They might have done it this way to help you with the federal tax the 6,245.00 (which actually becomes 8,877.04)  would generate. 

@carlosdpargas 

[carlosdpargas]

They added the 2,632.04 to my earnings. Also in the Employee Taxes section, they added that amount as well even tho in my W2 I don't see that amount anywhere but in my box 1 for wages. 

So if they withheld that amount to help me pay taxes for my share, how come I have to pay taxes on that?

I am so sorry, this is very confusing. I apologize

[ShirlynW]

If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income. Would you clarify, what box on the W-2 form contains the Employee Taxes section.

[carlosdpargas]

What do you mean? Could you please rephrase that question?

[Vanessa A]

If your employer paid taxes on your behalf that is considered money you earned.  It is no different than when you earn $20,000 by working.  You never see a portion of your wages because it goes directly for taxes.  Target paid you $8,877 but immediately took taxes out and paid them.  If they wouldn't have done that then the $6k they paid for tuition would still be taxable so you would have had to come up with the money on your own. 

[carlosdpargas]

Oh I understand. So now, do I have to pay taxes on the money that my employer pay for taxes?

[Vanessa A]

Yes, you are paying taxes on the money that your employer used to pay taxes but they already included that in their calculations so basically, they took care of all the taxes for you with that extra $2,600.

[carlosdpargas]

Could I apply for the American Opportunity Tax Credit or Lifetime Learning Credit? 

Please keep in mind that MSU said "the boot camp is a certificate program that does not meet the academic credit regulations required by the IRS for us to issue the 1098-T form" so I don't have a 1098-T form. I did attend as part time, I have never applied for any of those credits. 

And in the case that I could, when they ask what amount of money I paid, how much would I put in? The 6,245 alone, just the 2600, or both?

Thank you so so much for your help.

[Vanessa A]

It depends on the program for the American Opportunity Tax Credit since you are in a certificate program (you have to be seeking a degree or other recognized credential) and not sure what a boot camp program is for or what it leads to, but you probably could the Lifetime Learning Credit.  The LLC is a non refundable credit which means if your tax liability is at $0 you will not benefit from it, but if you do have some tax liability, then you would be able to reduce it by up to $2,000.

You would use the $6,250.