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How is the 1098-T "amount billed" supposed to be claimed for tax credit?

My friend's 2017 1098-T has the amount billed for his Fall '17 and Spring '18 (He registered in 2017 for spring courses) courses but for his scholarships and grants it only shows the amount he was rewarded in 2017 and not in 2018. In reality, his courses are paid for he just doesn't have all scholarships and grants present on 1098-T due to it being awarded in 2018. Can he still claim the amount billed or does he have to claim what was actually paid in 2017 ? If he does claim the amount billed what will happen? Can he just claim the amount billed in box 2 and not file the 1098-T on his 2018 tax return?

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Level 15

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Two things here. First, it's highly probable the student does not claim any education expenses on the student's tax return at all. Not one penny.  Most likely, the parent's claim it. That's covered later below.

Second:

 - Scholarships, grants, 529 funds are claimed and reported as taxable income (initially) in the tax year they are received. It does not matter what year that scholarship, grant or 529 distribution may be *for*.
 - Qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what tax year is paid *for*.

Now for the rules straight from the IRS, which most likely apply to your friend, meaning your friend reports nothing on their tax return when it comes to the education stuff. The reason I say "most likely" is because the question asked is common for a freshman college student, who doesn't yet understand how the taxes on this education stuff works. I'm mean, it's not like you learn this stuff through osmosis. 🙂

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

Now there are two separate determinations to be made here.

  1. Who claims the student as a dependent.

  2. Who reports all the education expenses and claims all the education credits.

     

    First, who claims the student as a dependent?

    If the student:

    Is under the age of 24 on Dec 31 of the tax year and:

    Is enrolled in an undergraduate program at an accredited institution and:

    Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:

    the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

    Then:

    The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”.  To reiterate:

    If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.

     

    Who reports all the education expenses and claims all the credits?

    If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:

    The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

    The parents will claim all educational tax credits that qualify.

    If the student will be filing a tax return and:

    The parents qualify to claim the student as a dependent, then:

    The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

     

    Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return.

     

    .If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses,  then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

    In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

     If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6350, then the student doesn’t even need to file a tax return, and nothing has to be reported.

    If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

    Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6350, then the student should file a tax return so as to get those withheld taxes refunded.

     

    1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred as follows depending on what type of 1040 you’re riling.

1040-EZ excess scholarship income is included on line 1.
1040-A excess scholarship is included on line 7.
1040 Excess scholarhip is included on line 7.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred as indicated above with one exception. For the 1040 excess ESA/QTP funds get transferred to line 21 with the annotation “SCH” next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

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Highlighted
Level 15

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Two things here. First, it's highly probable the student does not claim any education expenses on the student's tax return at all. Not one penny.  Most likely, the parent's claim it. That's covered later below.

Second:

 - Scholarships, grants, 529 funds are claimed and reported as taxable income (initially) in the tax year they are received. It does not matter what year that scholarship, grant or 529 distribution may be *for*.
 - Qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what tax year is paid *for*.

Now for the rules straight from the IRS, which most likely apply to your friend, meaning your friend reports nothing on their tax return when it comes to the education stuff. The reason I say "most likely" is because the question asked is common for a freshman college student, who doesn't yet understand how the taxes on this education stuff works. I'm mean, it's not like you learn this stuff through osmosis. 🙂

College Education Expenses

Colleges work in academic years, while the IRS works in calendar years. So the reality is, it takes you 5 calendar years to get that 4 year degree. With that said:

 - Scholarships and grants are claimed/reported as taxable income (initially) in the year they are received. It does not matter what year that scholarship or grant is *for*

- Tuition and other qualified education expenses are reported/claimed in the tax year they are paid. It does not matter what year they pay *for*.

Understand that figuring out who claims the student as a dependent, and determining who claims the education expenses & credits, is two different determinations. It depends on the specific situation as outlined below. After you read it, I have also attached a chart at the bottom. You can click on the chart to enlarge it so you can read it. If it’s still to hard to read on your screen then right-click on the enlarged image and elect to save it to your computer. Then you can double-click the saved image file on your computer to open it, and it will be even easier to read.

Here’s the general rules gisted from IRS Publication 970 at http://www.irs.gov/pub/irs-pdf/p970.pdf Some words are in bold, italicized, or capitalized just for emphasis. This is because correct interpretation by the reader is everything. Take the below contents LITERALLY, and do not try to “read between the lines”. If you do, you’ll interpret it incorrectly and risk reporting things wrong on your taxes. For example, there is a vast difference between “can be claimed” and “must be claimed”.  The first one indicates a choice. The second one provides no choice.

Now there are two separate determinations to be made here.

  1. Who claims the student as a dependent.

  2. Who reports all the education expenses and claims all the education credits.

     

    First, who claims the student as a dependent?

    If the student:

    Is under the age of 24 on Dec 31 of the tax year and:

    Is enrolled in an undergraduate program at an accredited institution and:

    Is enrolled as a full time student for one academic semester that begins during the tax year, (each institution has their own definition of a full time student) and:

    the STUDENT did NOT provide more that 50% of the STUDENT’S support (schollarships/grants received by the student ***do not count*** as the student providing their own support)

    Then:

    The parents qualify to claim the student as a dependent on the parent's tax return . Period, End of Story. But one thing I want to point out here. The parents *QUALIFY* to claim the student. The parents are *NOT* required to claim the student as a dependent. But even if they don’t, since they *qualify* to claim the student, then if the student will be filing their own tax return the student is *REQUIRED* to select the option for “I can be claimed on someone else’s return”.  To reiterate:

    If the student qualifies to be claimed on the parent’s tax return, then the student can not take the self-exemption on their own tax return, no …matter…what.

     

    Who reports all the education expenses and claims all the credits?

    If (and only if) the parents qualify to claim the student as a dependent, *and* the parents actually are claiming the student as a dependent, then:

    The parents will claim all schollarships, grants, tuition payments, and the student's 1098-T on the parent's tax return and:

    The parents will claim all educational tax credits that qualify.

    If the student will be filing a tax return and:

    The parents qualify to claim the student as a dependent, then:

    The student must select the option for "I can be claimed on someone else's return", on the student's tax return. The student must select this option even f the parent's qualify to claim the student as a dependent, and the parents do not claim them.

     

    Here’s when the parents will claim the student as a dependent, but the parents will NOT claim any of the education expenses or report the 1098-T on the parent’s tax return.

     

    .If the amount of scholarships/grants/529 funds exceeds the amount of qualified education expenses,  then the student will report the education stuff on the student’s tax return. The parent will know this when reporting the education on their tax return, because the parent will not qualify for any of the tax credits. (They only qualify for tax credits based on out-of-pocket qualified expenses not covered by scholarships/grants.)  Also, the parent’s will not qualify for the credits depending on their MAGI which is different for each credit, and depends on the marital status of the parent or parents.

    In the case where scholarships/grants covers “all” qualified education expenses, the parent’s don’t need to report educational information on their dependent student at all – but they still claim the student as a dependent if they “qualify” to claim the student.

     If the scholarships/grants exceed the qualified education expenses, then the student will report the 1098-T and all other educational expenses and scholarships/grants on the student’s tax return. The student will pay taxes on the amount of scholarships/grants that are not used for qualified education expenses. However, if the student’s earned income reported on a W-2, when added to the excess scholarships/grants does NOT exceed $6350, then the student doesn’t even need to file a tax return, and nothing has to be reported.

    If the student has any other taxable income not reported on a W-2, and it exceeds $400, (not including taxable portion of scholarships/grants) then most likely it’s considered self-employment income. That will require a tax return to be filed and the student will have to pay the Self-Employment tax on that income.

    Finally, regardless of the student’s W-2 earnings, if any taxes were withheld on those earnings and it was less than $6350, then the student should file a tax return so as to get those withheld taxes refunded.

     

    1099-Q Funds

 First, scholarships & grants are applied to qualified education expenses. The only qualified expenses for scholarships and grants are tuition, books, and lab fees. that's it. If there is any excess, then it's taxable income. It automatically gets transferred as follows depending on what type of 1040 you’re riling.

1040-EZ excess scholarship income is included on line 1.
1040-A excess scholarship is included on line 7.
1040 Excess scholarhip is included on line 7.

Next, 529/Coverdell funds reported on 1099-Q are applied to qualified education expenses. The qualified expenses for 1099-Q funds are tuition, books, lab fees, AND room & board. That's it. If there are any excess 1099-Q funds they are taxable. The amount is transferred as indicated above with one exception. For the 1040 excess ESA/QTP funds get transferred to line 21 with the annotation “SCH” next to it.

Finally, out of pocket money is applied to qualified education expenses. The only qualified expenses for out of pocket money is tuition, books, and lab fees. Room & board is NOT a qualified expense for out of pocket money.

When you have a 1099-Q it is extremely important that you work through the education section of the program in the order it is designed and intended to be used. If you do not, then there is a high probability that you will not be asked for room & board expenses, and you could therefore be TAXED on your 1099-Q funds.

Finally, if "all" qualified expenses are covered by scholarships, grants, 1099-Q funds and there is ANY of those funds left over, the left over excess is taxable. While the parent can still claim the student as a dependent, it is the student who will report all the education stuff on the student's tax return. That's because the STUDENT pays the taxes on any excess scholarships, grants and 1099-Q funds.

View solution in original post

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New Member

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Soooo, he can claim the amount billed on the 2017 1098-T form even he will receive scholarships and grants for that bill in 2018, YES OR NO ? Thank you for the explanation, I read through it all but it's still not clicking with us over here.
Highlighted
Level 15

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

If there is an amount billed in 2017, follow up screens will ask if that amount was actually paid in 2017. If it was in fact, paid in 2017 then have your receipts to prove it. Chances are, the IRS will be asking you for proof that you paid in 2017, the amount billed in 2017. But you don't send any proof to the IRS, until they ask for it.
Highlighted
Level 15

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

More than likely, it was paid from the scholarship money received in 2018. If so, nothing about the payment itself is reported until next year when you do the 2018 return. Otherwise, if it was actually paid in 2017, then you claim it on the 2017 return.
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New Member

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Thank You !!! Do you think they'll actually ask for his documentation ?
Highlighted
Level 15

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Yes. They asked a fair number of people last year. So if you can't prove it, don't claim it. Three rules to always keep in mind when dealing with the IRS.
 - You are guilty until proven innocent.
 - The burden of proof is on the accused (that's you!) and not the accuser.
 - If it's not it writing, then it did not occur.
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New Member

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Well this has had the most helpful answers I’ve seen on the subject (the recommended answer) I am in the opposite boat of this situation.

My son started college fall 2018, tuition for college was 20700$ A semester He received grants for 8875 a semester, and I pay just over 12000 a semester.

The 1098-T shows I paid 12000, but we received 17500 in grants, half of which does not apply till 2019. My bill was paid 1/9/2019. So even though I am actually paying over 50%, 1098 t says I am not due to a coupe of days in distribution.

Therefore no college credit, no breaks, and a frustrated me.
Highlighted
Level 15

How is the 1098-T "amount billed" supposed to be claimed for tax credit?

Hi @shawnandellie
I assume box 5 is more than box 1 on the 1098-T. Several key things to remember in your specific situation.
 - If excess scholarship was awarded in 2018 (excess will exceed the actual qualified expenses paid in 2018) and it was "not" sent to the student in the form of a check from the school, make sure you indicate that it was or will be "applied to next year". Otherwise, the student will end up paying taxes on money they did not get.
 - After you enter the 1098-T on your (the parent's) tax return, follow up screens will ask you for qualified education expenses not included in box 1 of the 1098-T, as well as any scholarships and grants not included in box 5.
 - While not impossible, I would be surprised if any of your out-of-pocket expenses were actually "qualified" expenses. Several things to consider on this front.
 1) The only qualified education expenses are tuition, books, and lab fees. That's it with no exceptions. Though the category for lab fees is rather broad and can even include the cost of a new computer for the student, provided such purchase was required for at least one course, and that purchase was made in the same tax year (2018 in your case).
 2) If there are any 529 funds that were reported to you or the student on a 1099-Q that can change your picture quite a bit. So let me know if either you or the student received a 1099-Q. I've explained it fairly well in my "1099-Q Funds" section above. But that's based on both Scholarships and 529 funds "not" covering everything.
For the most part, many can figure it out on their own. But if one over thinks it, it can drive them crazy, as well as bald. 🙂
"My bill was paid 1/9/2019.
Remember, expenses are claimed in the tax year they are actually paid, and it flat out does not matter what year they pay "for". Period.
"I pay just over 12000 a semester."
For what? Certainly not for qualified expenses of tuition. But you could have paid for books maybe. But not $12K by any stretch of the imagination, of course.
"So even though I am actually paying over 50%"
That's one thing that many parents mis-understand. There is absolutely no requirement what-so-ever for the parents to provide support to their student. Not one single penny. The support requirement is on the student, and *only* the student. That requirement is:
 If the student provided "MORE" than 50% of their "own" support, then the parents do not qualify to claim the student as a dependent on the parent's tax return. (This next part is important) Scholarships, grants, 529 funds, money from mom and dad, Gifts from Aunt Mary, etc) *DO* *NOT* *COUNT* for the student providing their own support.

Now there's more to that support requirement too. For example, it's perfectly possible for a student to have earned a million dollars, and yet still not have provided more than half of their own support. For example, if a student was awarded $50K in scholarships (wth excess money returned to the student), then there's just no way on this green earth that student provided more than 50% of their own support, regardless of the student's earnings during the tax year. That would mean the student's support requirements would have had to exceeded $100,000 for the entire tax year, and that's not likely even for a Harvard or Yale student.
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