Tuition Reimbursement in 2024 for lifetime learning credit for 2023 Tax Year?

[pman22]

Hello,

I am enrolled in graduate school (part-time) and received my 1098T. I took two courses in the fall 2023 that cost 5000 total (2,500 per course). 

I am participating in a tuition reimbursement program with my employer where the first 5,000 I paid was considered tax free and not reported as wages on my W2. I received half of the reimbursement up front (which is reflected in my 2023 pay stub), and the second half I received in January 2024 (reflected in 2024 paystub) after submitting proof that I passed (my final grades weren't provided until after the payroll cutoff for the 2023 year unfortunately).

HR has told me that the second half of the reimbursement (2,550) is already counting against the tax-free allowance for the 2024 year. How do I go about reporting this on my tax return if the second half applies to fees that were paid for 2023 fall semester? Can I choose not to claim the credit for the 2023 tax year and only claim the credit for 2024 semester tuition that's paid out of pocket and not reimbursed for the 2024 tax year? What about future tuition reimbursements for 2024 that are taxed and are reported on my w2? 

If I only report the first half of reimbursement I received in 2023, I get a pretty big credit applied to my federal refund, but I am unsure if this is the correct thing to do. If I treat the second half of reimbursement I received in 2024 as a part of 2023 education assistance (since it applies to a fall 2023 course), my refund remains the same. 

Thanks. 

[Hal_Al · Accepted solution]

Q. If I only report the first half of reimbursement I received in 2023, I get a pretty big credit applied to my federal refund.  Is this the correct thing to do?

A. No. Your are not allowed to do  that. Since you know tax free reimbursement is coming, even in the next year, you may not claim a tuition credit based on you temporarily being out of pocket.  This situation is actually covered in IRS Pub 970. 

Q.  How do I go about reporting this on my tax return if the second half applies to fees that were paid for 2023 fall semester?

A. You have nothing to report on your tax return.  You paid tuition and it was reimbursed, tax free. 

Q. What about future tuition reimbursements for 2024 that are taxed and are reported on my w2? 

A. By law, your employer may reimburse you up to $5250 tax free, per year. If they reimburse you more than that, the amount over that (excess) is taxable income to you and is included in box 1 of your W-2.  You may claim the tuition credit, based on the excess payments, since that was effectively paid by YOUR after tax money.