Tuition reimbursement from employer- education tax credit

[trumpet365]

My school charges my student account and my employer directly makes the payment. My employer paid $9,000 for my tuition and books. My employer did a “tuition gross-up” to cover the taxes, so the amount paid by my employer was $13,000.

My employer added the $13,000 to my Box 1 on my W-2. Because the amount was added to my gross income, would I be able to claim the American Opportunity Tax Credit even though my employer covered the amount in taxes by doing a tuition gross-up? 

Thank you in advance!

[Hal_Al]

Q. Would I be able to claim the American Opportunity Tax Credit (AOTC) even though my employer covered the amount in taxes by doing a tuition gross-up? 

A.  Yes.  That entire $13,000 is your taxable income.  As such, you effectively paid your tuition, not your employer.

You say the employer paid $9000 for tuition and books and added the whole $9000 (plus a tax allowance) to your income.  The IRS allows employers to give their employees up to $5250 of reimbursement tax free, if they set up a qualified plan.  You should verify that the first $5250 wasn't tax free. If it was, then you can only count $3750 (9000 - 5250 = 3750) for the AOTC. 

[trumpet365]

Thank you so much for the quick response! 

I believe they added the full $13,000 to my income (based on what my paystub shows). When filing my taxes through TurboTax, do I add the $9,000 when it asks about employer provided assistance OR can I just add the $9,000 when it asks if the amount under Box 5 on my 1098-T was added to my gross income? 
(In other words, where do I put that the $9,000 on my 1098-T under box 5 was reported on my gross income?)

[Hal_Al]

Q. Do I add the $9,000 when it asks about employer provided assistance?

A. No.  Do not enter taxed employer assistance. Only enter tax free assistance (typically $5250). 

Q. Or  can I just add the $9,000 when it asks if the amount in Box 5 on my 1098-T was added to my gross income? 

Verify that box 5 includes employer assistance. It shouldn't. But sometimes schools mistakenly put it there.  When asked that question, put the amount that is included in box 5 and taxed (probably $9000).

[Hal_Al]

@trumpet365  Do you work for an employer that provides educational assistance for all employees or is this something they are doing just for you?

If it's a regular plan, it would be unusual for the first $5250 not to be tax free.  You should verify the numbers before completing your tax return.  That said, it probably won't matter much. The $3750 probable amount you are allowed to claim is very close to the $4000 maximum needed for the full AOTC.

$3750 qualified expenses = $2438 AOTC 

$4000 qualified expenses = $2500 AOTC 

Here's how I would do it: enter the 1098-T with $3750 (or $4000) in box 1 and box 5 blank.  Enter no other numbers.

The 1098-T is only an 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. The 1098-T that you enter in TT is not sent to the IRS.

[trumpet365]

My employer goes through Guild, which is a third-party company that most employers go through when offering education assistance. 

Based on my paystub and W-2, the numbers show that they added $13,000 to my income ($9,000 of tuition and $4,000 tax allowance). 

I think I’m gonna do what you said- put $3,750 in box 1 and box 5 of 1098-T. If I were to do that, do I still need to input that I received tax-free tuition assistance from employer? Also, when it asks if the amount was added to my income, what dollar amount do I say….the $3,750? 

[Hal_Al]

Q. I think I’m gonna do what you said- put $3,750 in box 1 and box 5 of 1098-T. If I were to do that, do I still need to input that I received tax-free tuition assistance from employer?

A.  No.  For tax purposes, you did not receive tax free employer assistance.  You've already done the math to get your net qualifying expenses, by entering $3750.

Q. Also, when it asks if the amount was added to my income, what dollar amount do I say….the $3750?

A. No.  You enter no additional numbers.  The purpose of the short cut (entering $3750 or $4000 in box1) is to avoid the complication of entering the additional numbers and risking TT making a mistake.