Q. Am I missing something?
A. Yes. You need a cleared picture of what's going on there.
You don't say what's in box 5. A 1098-T is usually not issued in your situation ("These courses are covered costs as a benefit of her employment") and when it is, there's an offsetting amount in box 5. Tuition waivers are not taxable or even subject to the $5250 limit for other employers.
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.
You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T.
