Will I get a refund with my 1098-T, if I paid my college expenses with federal student loans?

[SweetieJean]

Are you a dependent?

[emma_gibbs]

No

[Hal_Al · Accepted solution]

Yes, tuition paid with loan money (but not scholarships) counts toward the tuition credits. This is because loans eventually have to be paid back, so it really is YOUR money that paid the tuition.

But, you do not get a “refund” of what you paid. The amounts you paid are used to calculate an education credit. The maximum credit is $2500, of which only $1000 is refundable. That is, the other (up to) $1500 can only reduce your calculated tax.

[Coleen3]

Edited 5:41 1/17/18

Funds paid with student loans count as if you paid them yourself. If you are not a dependent, you may claim your own education expenses. However, if you are claimed as a dependent, your parents get the credit if available.

Whether or not you can get a refund will not be determined until you do your tax return and the credit is used against your tax. The American Opportunity Credit, if you qualify, does provide a refundable credit.

The American opportunity tax credit (AOTC) is a credit for qualified education expenses paid for an eligible student for the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. If the credit brings the amount of tax you owe to zero, you can have 40 percent of any remaining amount of the credit (up to $1,000) refunded to you.

The amount of the credit is 100 percent of the first $2,000 of qualified education expenses you paid for each eligible student and 25 percent of the next $2,000 of qualified education expenses you paid for that student. But, if the credit pays your tax down to zero, you can have 40 percent of the remaining amount of the credit (up to $1,000) refunded to you.

Qualified education expenses must be paid by:

• You or your spouse if you file a joint return,
• A student you claim as a dependent on your return, or
• A third party including relatives or friends.
• Note.
  Qualified education expenses paid by a dependent for whom you claim an exemption, or by a third party for that dependent, are considered paid by you.

(The you in the last statement is your parents, if this applies to them.)

[Fmsams]

If I didn’t make any payments on my college tuition, will I still receive money from my 1098- t form?

[Hal_Al]

Q. If I didn’t make any payments on my college tuition, will I still receive money from my 1098- t form?

A. It depends on how the tuition was paid for, if it was not your out-of-pocket money.

Loans?  Then yes, you claim a tuition credit.

GI Bill?  No.  That's a tax free benefit

Employer assistance?  Up to $5250 is usually a tax free benefit and can not be claimed.  Amounts over $5250 are usually taxed and can be claimed for the credit.

Scholarships/Grants?  These are usually tax free and cannot be claimed, but there is a loophole. See below.

Parents, friends or relatives paid?  Yes, you can claim that money.

But  You cannot claim a credit if you are, or can be, claimed as a dependent by someone else.

Furthermore

There's a new urban myth among college students that says they can get a $1000 from the government just for filing a tax form. For most of them, they simply aren't eligible. A full time unmarried student, under age 24, even if you don't qualify as a dependent, is only eligible for the refundable portion of the American Opportunity Credit if he supports himself by working. You cannot be supporting yourself on parental support, 529 plans or student loans & grants. You usually must have actually paid tuition, not had it paid by scholarships & grants.  It is usually best if the parent claims that credit. 

There is a tax “loop hole” available. 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 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.

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.