Education assistance from employer and school

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February 19, 2026
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I got scholarships from my school and education assistance from my employer. Following are my scenarios:

1098-T:

Box 1 = 31743

Box 5 = 64743

W-2:

Box 1 shows Tuition Reimbursement - Tax = 643.7

Tuition paid to school - Taxable = 17161

From Turbotax under section "---scholarships or grants":

[] Received tax-free education assistance from an employer

Amount from employer = []

[] The aid was already reported as income on a W-2

Amount reported as income on a W-2 = []

Please advise on what to fill out in this section. Thanks in advance.

Hal_Al

Level 15

The education section of TT is under going a major overhaul. You may have to wait for the FEB 27 update to complete your taxes. In the mean time, you need to get a handle on your numbers.

By law your employer can only give you $5250 maximum, tax free tuition assistance.

If you got more than $5250, the amount above $5250 is usually already included in box 1 of your w-2 and you do not need to enter any additional income on your tax return.

But, since you have paid tax on that part, it is considered your after tax money and that amount can be used to claim the tuition credit. For tax purposes, it’s not really reimbursement, it’s your money.

So, did you really get $22,411 (5250 + 17,161) in tuition assistance? How much of that is included in the $64,743 shown in box 5 of the 1098-T? Some schools include employer assistance in box 5, some do not. You may have to make some adjustments to your 1098-T. You don't want to double report employer assistance and don't you want the tax paid portion treated as scholarship.

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 usually treat the difference as taxable income, unless you enter additional QEE at books and other expenses.

Hal_Al

Level 15

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”.

For purposes of the loop hole, tax free employer assistance (the $5250) cannot be treated as "scholarship". That is, it is considered restricted and must be applied/allocated to tuition.