Can I still claim the American Opportunity tax credit or the Lifetime Learning Credit if I get tuition reimbursement from my employer?

[sammae3]

I know I can only use the AOC or the LLC, not both. My employer did include my tuition reimbursement amounts in box 1 on my W-2. I was reimbursed less than $5,000 and previously claimed the AOC twice back in 2010 and 2011 the first time I was in college. 

[Rachel_W · Accepted solution]

Yes, you may be able to claim the American Opportunity Tax Credit (AOC) or the Lifetime Learning Credit (LLC) for the amount of tuition you paid.  

Normally employers do not include Tuition Reimbursement in Box 1 of your W2.  Because including the Tuition Reimbursement as Wage Income made it taxable income to you, you can kind of look at it as a "bonus" rather than a "reimbursement".

Since your employer included the Tuition Reimbursement in Box 1 of your W2, you can include 100% of the tuition you paid without reducing it for your employer's "reimbursement". 

Usually, the AOC gives you the biggest tax credit and can be claimed up to 4 times per student.

Check out this TurboTax Article for more details about Qualifying for Education Credits.

[mikedata11]

Hi, I had a similar situation.  I took the Lifetime Learning Credit in 2018, then received tuition reimbursement in 2019 from my employer.  Do I just exclude that under the $5250 non-taxable allowable assistance, or do I have to recapture it as additional tax this year?  I don't know if they included it in my wages or not, I could try to find out.  Could you answer for either possibility? Thank you.  

[JulieS]

I am sure it is not included in your wages. You should report it as nontaxable assistance.

[upstater]

Hi,

My tuition reimbursement is not included in the figure in Box 1 but it is shown as "Misc. Non Taxable Comp" in the summary section (that light blue area on the top right section of the page). 

It is shown like this:

                                                               Wages,Tips, other Compensation (Box 1 of W-2)

Gross Pay                                             45,000

Less (Misc. Non Taxable Comp).       1,000

Less ( 414(h) )                                        3,000

Less (Other Cafe 125)                          2,500

Reported W-2 Wages                        38,500 (which is also the amount in Box 1)

And Turbo Tax says, under the Scholarships/Grants (for all schools) section:

Did You Receive a Scholarship or Grant in 2020?

-Fellowship

-Employer-provided assistance

-Veteran education benefits

-Other tax-free assistance

Yes

No

And when I choose "NO", nothing happens but when I choose "YES", then it says:

Enter the amount you received.Don't include amounts already listed on a W-2 or other tax form.

Other Scholarships/Grants/Fellowships:  _______

Veterans' Education Benefits or certain Indian Tribal Payments:  _______

Employer-Provided Assistance:  _______

Now, do include the $1,000 above next to "Employer-provided assistance" if I answered "YES" to the first question?

Thanks.

[Hal_Al]

Answer YES when asked if you received:

-Fellowship

-Employer-provided assistance

-Veteran education benefits

-Other tax-free assistance

Enter the $1000 at:

Employer-Provided Assistance:  _______

Since that is tax free assistance, that $1000 cannot be used in calculating your tuition credit.  Entering it here causes TurboTax to reduce the amount in box 1 of your 1098-T by $1000, before calculating the credit.  If your employer sent the $1000 directly to the school, the school may have already included that amount in box5 of your 1098-T.  Be sure that didn't happen before you enter the $1000 at Employer provided assistance. 

[upstater]

Thank you very much for the prompt response.

First of all, I apologize for not entering the exact amount. I just wanted to use other figures in the example, then I realized it may lead to other decisions.

In the actual case, the reimbursement amount was $5,603. (here comes into play the $5,250 limit, I guess?).

Also, my 1098-T is showing $3859. This is the actual amount I paid for tuition for courses taken in 2020 (and got reimbursed). The reason for the $5,603 is that the employer made another reimbursement payment of $1744 in January for a course I took in Fall of 2019. The W-2 is including both of those amounts under the "Misc. Non Taxable Comp." figure of $5603.

This is kind of complicating things further. I don't know how to handle this. I don't want to get the Lifetime learning Credit by mistake if I am not eligible. My guess is that I should skip the education credit section at all as if I am not studying (because I did not pay anything out-of-pocket). No 1098-T info, no reimbursement info etc. Would that be the right move? 

Please help. And my apologies again if I made it more complicated.

[Hal_Al]

Yes, skip the education credit section as you did not pay anything out-of-pocket). 

The reimbursement to enter is $3859.  Since your entire box 1 (1098-T) amount was fully reimbursed by tax free money, you are not eligible for a credit.

You do not need to (and should not) enter the 1098-T (if you had one) at all.  

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 deduction or possibly your student has taxable scholarship income. 

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. 

[upstater]

Got it. Thank you so much! I was gonna do that but wasn't sure if I would be treated by IRS as "not disclosing"/"not mentioning about" the tuition reimbursement I received which was somehow mentioned on the W-2 under the name "Misc. Non Taxable Comp".