Starbucks SCAP 1098-T - PA State Taxes

[maybemae]

I am a Starbucks partner using the benefits through ASU to go back to school. Its specified in the FAQ document provided to us that in Pennsylvania where I live the Starbucks Tuition Assistance is taxable in the full amount through the state. What does this mean for my tax return? Should I put in my 1098-T? Another similar post was answered and specified that it was not needed if nothing was paid out of pocket, but I have to pay for books and supplies out of pocket. Am I eligible for a tax credit if I paid for books? I have talked to both Starbucks and ASU support and neither of them could answer my question due to being in an uncommon situation due to the state I live in. Thanks in advance for the help! 

[KrisD15]

To clarify, did you get Form 1098-T and if YEs, is the SCAP funds listed in Box 5? Is the amount in Box 1 larger than  (or the same as)  the amount in Box 5?

Is the benefit reported on any other tax form? 

[maybemae]

I did receive a 1098-T already, the number is the same in both boxes. The main issue is that I have a mix of federal scholarships and scholarships from the school as well as the portion that Starbucks covers and I'm just not sure which parts are taxable and which parts aren't. 

[Hal_Al]

Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free.  Scholarship amounts that exceed QEE is taxable income, on the student’s tax return. Room & board are not QEE.

If box 5 of the 1098-T exceeds box 1, TurboTax (TT) will treat the difference as taxable income, unless you enter additional QEE at books and other expenses.

After entering the 1098-T, you will be asked if there were any other scholarships not already shown on the 1098-T. 

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".  There is a tax “loop hole” available to claim an education credit, for the parents of students on scholarship. 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 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.

The IRS actually encourages use of this technique. From the form 1040 instructions: “You may be able to increase an education credit if the student chooses to include all or part of a Pell grant or certain other scholarships or fellowships in income. For more information, see Pub. 970, the instructions for Form 1040 and IRS.gov/EdCredit".  PUB 970 even has examples of how to do the “loop hole”.

[KrisD15]

The Starbucks College Achievement Plan is structured as an employer education reimbursement. 

As long as the amount was $5,250 or less in tax year 2024, it is not taxable, you needn't claim it on your Federal Return nor your State Return.  You also cannot use the tuition paid with those funds towards an education credit. 

So in your situation, if you have one Form 1098-T with 5,250 or less in Box 5 and a matching amount (of 5,250 or less) in Box 1, that 1098-T does not get entered into your TurboTax program. Keep your copy with your tax file. 

(if it's over $5,250, you might need to claim income, but I am assuming they keep the yearly amount to the yearly IRS limit) 

IF YOU HAVE OTHER EXPENSES, such as books and supplies, and you are working towards a degree, you do NOT need to separate the books and supplies that you purchased for the classes covered by your SCAP award from any other book or tuition expenses you had. You can add all those expenses up. 

Remember that if anyone took the American Opportunity Tax Credit on your expenses in the past (such as your parents), those times count towards the limit of four times that the American Opportunity Tax Credit can be claimed. There is also the option of claiming the Lifetime Learning Credit. 

According to the Starbucks College Achievement Plan:

"The Starbucks College Achievement Plan is a Qualified Education plan under Internal Revenue Code section
127. This means that the amount that Starbucks covers for your tuition and fees (Starbucks Tuition Benefit) is
tax free for federal income tax up to $5,250 per calendar year. If the annual tuition coverage exceeds $5,250,
the excess amount is reported as taxable income to partners and applicable federal taxes are required to be
paid by the partner."