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Level 3

2018 1098-T Issue

We received a 1098-T from the University of XYZ at the beginning of February that was not correct. My wife and I paid a total of $7602.00 in qualified tuition in 2018, of which $2222.00 was paid in December 2018 for a semester starting in the first 3 months of 2019. The incorrect 1098-T excluded that $2222.00, but it did have Box 7 check, indicating Box 1 had tuition for a semester starting the first 3 months of January. The University acknowledged the error and committed to fixing it. Here we are with the corrected 1098-T and now instead of added back the $2222.00, they've just unchecked Box 7. They said they are going to include the December 2018 payment on our 2019 1098-T. I told them I don't think this is correct protocol, but they said their internal system is making them and it can't be fixed. They said their system is pulling the amount from the effective date (when the semester starts), as opposed to the transaction date, which is how I believe it should. I think they've recorded the payment as received on the effective date instead of the actual transaction date, and it would take too much time to change the dates for every student at the school. And it doesn't seem like they're interested in doing that regardless. According to IRS Pub 970, Prepaid Taxes paid in 2018 for the first 3 semesters of 2019, can ONLY be included on your 2018 taxes. Can they "legally" include a payment made in 2018 on your 2019 1098-T given the instructions and rules from Pub 970? If not, how can I get them to make this change since they clearly don't have any desire to do so no matter what I say? Thanks!

9 Replies
AJ
Level 11

2018 1098-T Issue

     For just the reasons that you describe, one can't put total trust in the numbers on the 1098-T to use the reported numbers directly for the yearly tax return.  Schools are not consistent, and the tuition numbers that schools report are ambiguous with regard to billing and payments for spring semesters and winter quarters.

     As you correctly note, IRS Pub 970 specifically states that education payments count in the year that you pay them.  For the current spring semester or winter quarter, if you wrote and mailed your check in December 2018, then that counts for 2018.  If you waited to write and mail your check until January, then it would count for 2019. There has never been a good way to capture that change-of-year issue using the 1098-T.  So just keep your own financial records and copies of your checks or other payment methods, and use your own accurate information. You will need your own financial records for other qualified items, such as books for the American Opportunities Credit since those are not on the 1098-T.  In addition, obtain and save copies of the school's billing and payment ledger in order to have the financial records that can substantiate your claims and verify your payments and the expense items. 

     Put the true numbers into your tax return based on the true dates of the payments.  Don't worry that the 1098-T isn't a 1-for-1 match. I hardly ever see them match on any consistent basis.  If you ever get questioned, then use your financial records and the school financial ledger to provide the proof for your return.

     The good thing about the 1098-T is that it does indicate that the student was enrolled at the institution, and it will indicate whether or not the student is attending as at least a half-time student--that is important information.   Taken together over a series of years, the 1098-T forms can provide the IRS with a good picture of tuition expenses to ensure that your credit claims are reasonable.

AJ
Level 11

2018 1098-T Issue

  For just the reasons that you describe, one can't put total trust in the numbers on the 1098-T to use the reported numbers directly for the yearly tax return.  Schools are not consistent, and the tuition numbers that schools report are ambiguous with regard to billing and payments for spring semesters and winter quarters.

     As you correctly note, IRS Pub 970 specifically states that education payments count in the year that you pay them.  For the current spring semester or winter quarter, if you wrote and mailed your check in December 2018, then that counts for 2018.  If you waited to write and mail your check until January, then it would count for 2019. There has never been a good way to capture that change-of-year issue using the 1098-T.  So just keep your own financial records and copies of your checks or other payment methods, and use your own accurate information. You will need your own financial records for other qualified items, such as books for the American Opportunities Credit since those are not on the 1098-T.  In addition, obtain and save copies of the school's billing and payment ledger in order to have the financial records that can substantiate your claims and verify your payments and the expense items. 

     Put the true numbers into your tax return based on the true dates of the payments.  Don't worry that the 1098-T isn't a 1-for-1 match. I hardly ever see them match on any consistent basis.  If you ever get questioned, then use your financial records and the school financial ledger to provide the proof for your return.

     The good thing about the 1098-T is that it does indicate that the student was enrolled at the institution, and it will indicate whether or not the student is attending as at least a half-time student--that is important information.   Taken together over a series of years, the 1098-T forms can provide the IRS with a good picture of tuition expenses to ensure that your education credit claims are reasonable.

Level 14

2018 1098-T Issue

AJ - can you please evidence where in Pub 970 it states that the educational payments count in the year you pay them? 

 

what publication 570 states (bottom of page 2)

 

https://www.irs.gov/pub/irs-pdf/p970.pdf

"When figuring an education credit, use only the amounts you paid and are deemed to have paid during the tax year for qualified education expenses."

 

so your response is problematic to me because not only must the payment be paid in 2018, but is ALSO  must be 'deemed' to have been paid in 2018.  The college is 'deeming' it paid in 2019, i.e. parent sends the check on December 26th and the college posts it on January 2nd.  That is the problem. 

 

the reason the Box 1 expenses don't otherwise match is a number of expenses (room and board, books, etc) are not 'qualified expenses; however, TurboTax asks you for these non-qualified expenses in any event. to calculate credits available.  

 

My advise is DO NOT override Box 1.  You risk an audit.  and if you do override Box 1 and end up with additional taxes and penalties, the Turbo Tax 'guarantee' will not cover you because you didn't post the 1098-T as it was documented. 

 

p.s. the policy on pre-paid taxes isn't germane unless there is something in Pub 570 I've overlooked. 

 

please advise if I have overlooked something or others think my logic is not sound.

AJ
Level 11

2018 1098-T Issue

     Please see Publication 970, Chapter 2, Page 14, left column.  The rule is buried in the AOC section, but it applies to LLC too.  It states, "

Qualified education expenses paid in 2018 for an academic period that begins in the first 3 months of 2019 can be used in figuring an education credit for 2018 only. See Academic period, earlier. For example, if you pay $2,000 in December 2018 for qualified tuition for the 2019 winter quarter that begins in January 2019, you can use that $2,000 in figuring an education credit for 2018 only (if you meet all the other requirements)."

     Then look at the big CAUTION SYMBOL  that more clearly defines this issue that says, "You can't use any amount you paid in 2017 or 2019 to figure the qualified education expenses you use to figure your 2018 education credit(s)."

     You can also look at Chapter 3 for the Lifetime Learning Credit on Page 24, right column where it says, "Generally, the credit is allowed for qualified education expenses paid in 2018 for an academic period beginning in 2018 or in the first 3 months of 2019. For example, if you paid $1,500 in December 2018 for qualified tuition for the spring 2019 semester beginning in January 2019, you may be able to use that $1,500 in figuring your 2018 credit."

    So to translate, if paid in 2018, then use it in 2018.  If paid in 2018 for a winter/spring session, then the payment is deemed to have been paid for a qualified education expense.  Even though the school session might be 2019 it is deemed to be OK for a 2018 expense.  The text and caution symbol and the examples make this fact abundantly clear.

    The IRS acknowledges this problem in Pub 970 on Page 3 where it states, "However, the amount on Form 1098-T might be different from the amount you actually paid and are deemed to have paid."

     Therefore, when claiming payments for tuition credits, one should use the truth and should not claim the credit using incorrect information.  The IRS rule is to use the date of the payment.  It is OK to pay in December and claim in that year because the IRS deems that to be OK.

     I generally see people taking the AOC, this is usually not a problem because the credit tops out after spending $4000 on tuition. For most schools, that is only one of the two semesters.  So when the 1098-T gives $4000 or more, and if one really did pay the $4000 or more for tuition and books in the tax year, then we can just enter the $4000 number for AOC tuition, and we move on.

     And while books are not qualified educational expensed for LLC, BOOKS ARE QUALIFIED EDUCATIONAL EXPENSES FOR AOC.   Housing is not qualified for either LLC or AOC, but housing is qualified (with some limitations) for 529 spending.

     

 

 

 

 

AJ
Level 11

2018 1098-T Issue

     OK.  Here I will try to guide you through the data entry process.  First, you need to know what you paid and when you paid it. You need to know scholarships and when they were paid. 

     Again if you paid in December 2018 for qualified tuition to go to school in 2019, then the IRS tells us to record that payment as a 2018 expense. It is OK to pay in December for expenses for the 1st 3 months of 2019.  But if you pay in 2019. then those expenses are for next year.

     You should normally enter the 1098-T via the path Deductions & Credits/Education/Expenses and Scholarships (Form 1098-T).  When you get into the 1098-T data form, then enter the data exactly as written on your 1098-T.  Whatever it says for Box1, then put that number in Box1 in TurboTax even it is not a correct number.   TurboTax gives you an approved method to fix incorrect numbers.  (Note that my version of TurboTax has a note next to an orange-colored Boxes1-6 tells that reporting varies by school.)

    Here is the thing you need to do to insert the correct tuition.  Look for the words, "What if this is not what child paid to this school?"  (You see, they know that the Box-1 data is often wrong.) This is the situation where your own records are what will really count.  You will need to know your 2018 tuition payments better than the school.  And from what you write, you do.  CLICK THAT LINK below the Box 1 entry on the 1098-T page, and then a box will appear that lets you insert the true number for your 2018 tuition.  Be sure to enter all of the rest of the information from the 1098-T--especially Box 8 because if that Box is inadvertently missed then results might get confusing.

     I recommend that after all is entered, you should then look at View/Forms (Thin black colored menu near the top of the window.)  Then look for the form named 1098-T Wks for the school. Immediately below the numbered boxes in that worksheet, you should see a section titled "Reconciliation of Box 1, Payments Received for Qualified Tuition Expenses."  Box B gets populated with the your corrected number for tuition.  Box A will only have a number if you enter a number lower than reported by the school.  The Box 5 Scholarship and Grants information gets corrected in a similar manner.  There is nothing unusual about this process, and you should be fine as long as you have your records to document the true numbers.

     Your school is not unique.  I have prepared many of these education credits, and I find that the numbers on the 1098-Ts are more often wrong than correct.  I always ask clients to bring their bank records along with the school financial records so that we can unscramble the mess and get to the truth that will hold up if ever audited.

     

Highlighted
Level 14

2018 1098-T Issue

AJ - thx so much for the evidence and explanation  - it was quite helpful

 

But here is my remaining question.  Can you please evidence the advice to override the 1098-T?  That is a document that comes from the college and documents their records and is further sent to the IRS.  Overriding it invalidates the Turbo Tax guarantee if there are additional taxes or penalties that later surface

 

When imputting the 1098-T, right under the Box 1 input, there is a link that says 'what happens if this is not what I paid to this school'; once you click the link it provides opportunity to fill in another number which presumably would include the payment made in late 2018 and not posted  until 2019 by the college. 

 

Any reason this is not the more elegant and appropriate way of solving for this issue as it doesn't change what the college sent the IRS (which could open up a letter / audit issue) and doesn't impact the Turbo Tax guarantee? 

Level 14

2018 1098-T Issue

looks like we were posting at the same time; thx for the response, I agree

AJ
Level 11

2018 1098-T Issue

NC person.  Thank you.  I am not always correct so we need to always work together  to be correct.  Please know that I have followed many of your posts and you have taught me several things.  I admire your work.  🙂

AJ
Level 11

2018 1098-T Issue

     Hmmmmm.  For some reason, my previous post, which tried to explain the data entry process, disappeared. So I will reenter here. (I will keep this one shorter.)

     Enter all data on the 1098-T exactly as provided.  However, use the link under Box 1 on the 1098-T labeled, "What happens if this is not what I paid to this school?"  Click the link and enter what you really paid for tuition in 2018.  You should have financial records to back up your numbers.  It is OK to use your numbers because you will often have better numbers than the school--especially in cases where you pay in December 2018 for the upcoming semester or quarter. 

     When your data entries are completed, I recommend that you take a look at the worksheet in TurboTax.  Get to the worksheet by selecting "View/Forms" or using Ctrl-2 in Windows. Look at the form named 1098-T Wks.  The number you entered (after clicking on, "What happens if this is not what I paid to this school?") should be on Line B for the "Reconciliation of Box 1".  Line A will only have a number if you entered a lower number than the school showed.

     Again, enter the 1098-T data exactly as provided, but use your own records when you know the correct tuition.  The IRS rule is that the tuition counts in the year that it is paid.  And if you pay in December 2018 for classes starting during the first 3 months of 2019. then that payment goes into the return for tax-year 2018.