Keeping in mind the specifics of tax returns is a widespread issue among both students and their parents, but especially in cases of education credits. IRS Form 1098-T is actually one of the most important of these forms and one of the most important reminders when qualifying for education credits like the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC).
What is IRS Form 1098-T?
Form 1098-T, or “Tuition Statement”, is a reporting form that is required to be prepared by qualified educational institutions and provided to students and the IRS. The form reflects amounts paid in the calendar year for qualified tuition and related expenses on which to compute educational tax credits.
Key sections of Form 1098-T
It is required to be familiar with sections of Form 1098-T to report taxes properly:
- Box 1: Refers to the total of payments received by the institution during the calendar year for qualified tuition and related expenses.
- Box 5: Refers to the total grants or scholarships paid and processed by the school.
- Box 7: Checked, indicates that the amount in Box 1 includes payment for periods of study beginning during the first quarter of the next year.
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How to use Form 1098-T
Although Form 1098-T is not mailed with your return, it does contain helpful information to report education credits:
- Check personal information: Make sure your name, Social Security Number (SSN), and address are accurate.
- Check financial entries: Make sure Check Box 1 and Box 5 figures match your records.
- Calculate qualified expenses: Subtract Box 5 (grants and scholarships) from Box 1 to calculate net qualified expenses for tax credits.
Impact on education credits
Form 1098-T assists in reporting education credits that reduce your tax liability:
- American Opportunity Tax Credit (AOTC): Offers the qualified maximum credit of $2,500 per student for qualified tuition and fees you paid for each of the first four years of secondary education. To be eligible for the AOTC, an eligible educational institution has issued you a Form 1098-T.
- Lifetime Learning Credit (LLC): Provides a credit of $2,000 or less per return for qualified tuition and fees. Similar to the AOTC, Form 1098-T is generally needed to report the LLC.
Claiming education credits without Form 1098-T
There are some situations where you can claim education credits without a Form 1098-T:
- Exceptions: Even if the school is not required to provide you with a Form 1098-T (e.g., because it has one or more of certain exceptions), you may claim the credit if you can establish proof of enrollment in an eligible educational institution and documentation of payments of qualified tuition and related expenses.
- Missing form: You did not receive a Form 1098-T but were a student and paid qualified tuition costs; you also claim the credit by filing substitute documentation, i.e., tuition receipts or statements.
