Form 8863: Education Credits ($160k to $180 Income Issues)

[WorshipsTaxGods]

Dear Tax Gods,

    My understanding of Form 8863 (as of yesterday) is that with (2) children in college, I can claim/collect up to $5000 in education credits, $2500 per child.  I know there are other nuances associated with allocation of education expenses with 529 plans "in-play" but I won't go into that. 

    For a family making $160,000, the full $5000 is available.  For a family making $180,000, it drops to $0.  Wow!

    Coincidentally, my wife started working this year.  I make around $155k.  She makes around $25k, so total around $180k.   So, I'm finding we don't qualify for any of the $5000 education credit.

The kicker is that I put aside $19,000 to a Roth 401k this year.  Hypothetically, if I had made my contributions traditional 401k instead of Roth (which I had the option to do), this would have dropped my taxable income (which I knew about) and would at the same time qualified me for the vast majority of the education credit (which I did not know about).  The second kicker is that I was actually making traditional contributions last year but because these are still taken into consideration for financial aid purposes (on CSS profile), I had decided to revert back to Roth 401k contributions.

    Question:  Assuming there are no issues with my understanding above, is there a pathway for me to receive this education credit, i.e. not get screwed.

Thoughtful responses would be much appreciated.

[DianeC958]

No, unfortunately with the amount of income you make, you do not qualify to receive the education credit.

The Lowdown on Education Tax Breaks

@WorshipsTaxGods

[WorshipsTaxGods]

My point was that I would qualify if my 401k contributions had been traditional instead of Roth Type contributions because taxable income would be 160ish instead of 180ish.  However, I did not make traditional contributions.  Is there a way to reverse these?

[HelenC12]

No,  there's no way to reverse this because 401(k) contributions would have to have been made, through your employer, in 2019.

• The contributions would have shown up on your 2019 W-2.
• Your employer can't go back and re-do all the payroll transactions to include your 401(k) contributions.
• That would also mean your employer would have to refile all the payroll tax forms and give you a corrected W-2.
• There also isn't a way to make the change in TurboTax, using the income tax forms.