Lifetime Learning Credit issue not due to non-refundable limit

[krm123]

I use Turbo tax desktop so I cannot ask this question through Live Advice.

In 2022 I finished my masters degree which my company pays for. I paid up front and get reimbursed for my tuition from my employer, but that generally lags the school semester by a month or so - my last semester of 2022 was reimbursed in 2023. One of my two fall semester classes in 2022 did not get reimbursed since it did not meet my employer minimum grade – but it did count as a pass grade. I believe I can use that class payment to qualify for the Lifetime Learning Credit (LLC). I am under the required AGI and I did have enough income taxes paid to have a tax reduction.

Since I did not get a 1098-T for 2023 (all payments were in 2021 and 2022), I tried to amended my 2022 form via Turbo Tax to qualify for the LLC since I did pay for the reimbursement denied class in 2022.

When I went to Turbo Tax to file the amended return, it said that I can’t claim an education tax break because of one of the following:

1) Somebody can claim me as a dependent (not the case).

2) Scholarships, grants and other tax free assistance exceeded the education expense (it did not I paid $4928 according to worksheet calculations).

3) There where no qualified educational expense (there was – I paid for one class that was not reimbursed).

The way I calculated the expense, I should have been able to reduce my total taxes owed by $986(20% of $4928) calculated by form 8863 and schedule 3. This should have been used to reduce my total 2022 taxes owed.

Detail calculation:

 $43782 Qualified education expense in box 1 of 1098-T

– $ 5000 Grant in box 5 of 1098-T

– $33854 Employer reimbursement (combined 2022 and 2023)

---------

 $ 4928

x    .2 Line 12 of form 8863

---------

$  986

What am I missing?

Thanks in advance.

[AmyC]

Let's work through each issue.

1. Amending your 2022 sounds smart. Only 2022 income and expenses go on a 2022 return with your 2022 Form 1098-T. The education credit is nonrefundable so it reduces your tax liability. If you have no tax liability, there is no credit.

2.Somebody can claim - double check that you did not accidentally mark that someone could claim you

3. Scholarships exceed tuition expense. Maybe there was a typo entering the 1098-T so that the numbers are not correct and causing an error.

4. No qualified education expenses - double check that you marked all requirements for Qualified Education Expenses - Internal Revenue Service. For the Lifetime Learning Credit, you can qualify if you take the course to acquire or improve your job skills.

[krm123]

Thank you for your answer. Your reply made me go back and revisit everything. Sure enough - I missed something and when it was corrected I was able to continue and get the LLC reduction.

Thanks again.

[Jswenson15]

Helping my son prepare his tax return and we have run into an issue with the Lifetime Learning Credit while using Turbo Tax. According to Turbo tax there are 4 reason one would not qualify 

1) Someone can claimed as a dependent on their return

2) There is no taxable income on the turn 

3) Scholarship, grants and other tax free assistance exceed the education expenses

4) There were no net qualified education expenses

He is 24 and we did not select that he could be claimed on another taxpayers return.

He is single, he is not a nonresident alien and his taxable income is $16,600. He is a at least half time student working on his Graduates degree. Box1 (Qualified Expenses $23,500) of the 1098-T is not greater than than Box 5 (Scholarships $6880). 

We are at a loss as we cannot figure out why Turbo Tax indicates that he cannot claim the Lifetime Learning credit education tax break. Your help is greatly appreciated.

[SusanY1]

Is there any tax on Line 24 of his Form 1040?  If there is not, this is likely why it is not calculating the credit.  Since the Lifetime Learning Credit is not refundable, it can only be applied to tax on Line 24.  If there is no tax there to reduce, the credit won't calculate. 

To see this line on the tax return, follow these steps:

From the left rail menu in TurboTax Online, select Tax Tools (You may have to scroll down on the left rail menu.)

1. Select Tax Tools 
   
2. On the drop-down select Tools 
3. On the pop-up menu titled “Tools Center”, select View Tax Summary 
4. On the left sidebar, select Preview my 1040 

[Jswenson15]

There is a $147 tax but the credit isn't eliminating the tax and the $147 is reducing his refund. Shouldn't it zero out the tax and give him the full refund of $536 rather than $389?

[DawnC]

It depends on what kind of tax is on line 24.  If the $147 tax is also on line 23, the Lifetime Learning credit won't reduce those taxes.   That credit is subtracted out on Line 20  of Form 1040.   @Jswenson15  

[Jswenson15]

Thank you