Usually, you may not claim a tuition credit for expenses paid (or reimbursed ) by tax free money (e.g. scholarships, grants, VA benefits or employer reimbursement). Employers are allowed to reimburse employees up to $5250 tax free. Anything over that is taxable and included as taxable income on your W-2. So, any expenses over $5250, including books, may be used to claim a tuition credit.
But, you have a choice (actually a tax loop hole). You may choose to include any of the $5250 (normally tax free) reimbursement as taxable income. Since taxed income is considered your money, you can use that amount to claim the education credit.
It may get a little
complicated reporting the now taxable reimbursement correctly. It's best explained by
example. Lets say you paid $6000 in tuition, in 2016, and use $4000 of that to
claim the tuition credit ($4000 is all you need to get the maximum amount of
credit on the American Opportunity Credit).
Your employer reimburses you $6000. On your 2016 W-2, he shows $5250 (the maximum allowed) of tax free educational
reimbursement and $750 of taxable reimbursement. $750 will have already been
included in box
1 of your W-2 as taxable income. You now have to report $3250
(4000-750) as additional taxable income on your 2016 return. $3250 goes on line
21 of form 1040 as "Taxable Reimbursement". TurboTax can
not automatically pull that from your w-2. You have to enter it manually. In
TurboTax enter at::
Federal Taxes Tab
Wages and income
Scroll down to:
--less common income
---Misc Income, 1099-A, 1099-C..... (Press start)
----On the next screen, select Other reportable income
-----Two screens in, type Tuition reimbursement and $3250
Alternatively (using the
numbers in the example), you can use only $750 to claim the tuition credit in
2016. "How do you fill out the 1998-T?" You enter the 1098-T, exactly as shown. Later, in the education interview, you will be asked if you got any employer reimbursement.
