Tuition Remission and W2

[WPA]

I am a full-time professor at a University in PA. Since Spring 2023, I have been using my employee benefit to pursue another master's degree. The university has already issued a 1098-T form, and its box 5 Scholarships or grants and box 1 are valued at the amount of tuition remission I obtained. However, my 2023 W-2 form doesn't include the tuition remission I received beyond $5,250. If my understanding is correct, the portion of graduate tuition remission is subject to federal tax. 

I have already entered all the forms into Turbotax to prepare my 2023 tax return. I checked the box for free-employer-provided educational assistance and claimed $5,250. However, Turbotax still doesn't correctly reflect the amount of tax related to the tuition remission. How should I correctly report this and claim the $5,250 deductible by using Turbotax deluxe? As a PA resident, do I still need to pay state tax for the graduate tuition remission?

[WPA]

To clarify my situation, I work and study at the same university. Both boxes 1 and 5 of Form 1098-T have the same value.

[Vanessa A]

There are different types of employer education benefits that fall under different tax codes.  

Since your employer included your full tuition in box 5 as a scholarship, it is likely they are using code 26 U.S. Code § 117 - Qualified scholarships.  So if box 1 and box 5 are equal, you would not have any taxable scholarship income. 

There is also code 132D Qualified Employee Discount which are non taxable fringe benefits.  

In both of these situations, the benefit is not limited to $5,250. 

If they are using either of the above codes, then you would not have to pay PA tax on the scholarship or tuition discount.  

For both of these situations, you also would not include anything else on your tax return related to the tuition, other than the 1098-T.  At the same time, you cannot take any education credits for tuition that was fully paid by scholarships. 

[WPA]

Thank you, Vanessa, for the explanation. Much appreciate.

[Hal_Al]

Based on the facts that you have presented, you do not have any taxable income.  University tuition remission is not the same an an employer tuition reimbursement plan. It's the same as a scholarship. And since that "scholarship" was used to pay qualified expenses (tuition), it is not taxable. See IRS Pub 970.  If it was  taxable an employee benefit, your employer MUST enter it in box 1 of your W-2. 

That said, we'll go on to your question.

Q. Can I directly pay the IRS the tax I owe without revising the W-2? How can I prepare it in TurboTax?

A. You use a workaround. There are several. The simplest is to enter your 1098-T with  box 1 blank and $34,960 in box 5. The income will go on line 8r of Schedule 1, as taxable scholarship.

The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2023 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS

Q.  As a PA resident, do I still need to pay state tax for the graduate tuition remission?

A. Yes. The taxable income on the federal return will automatically transfer o the state return.