Q. Should I claim the education tax credit?
A. No. At this point, the education was paid for by tax free money, so you cannot claim a 2nd tax benefit (the education credit). It's not clear if the money is an employee benefit, a scholarship, a gift or under the table money.
Q. Should I report the $17,000 as income (and then claim a tax credit)?
A. You may want to discuss that with your employer. It gets messy. The $17,000 should have been included on your W-2 (or at least, most of it). There is a provision for employers to provide up to $5250 of educational assistance, tax free. But IRS rules must be followed.
An employer cannot give tax free gifts to employees. This sounds like a one off deal for you, as opposed to a company tuition reimbursement plan.
The proper way your employer can deduct this ("He plans to file this on his taxes in some capacity") is as employee compensation or benefits. He should be adding it to your W-2.
There are other ways for you to report it, but none of them are as correct as it being on your W-2. Reply back if you need more info.
