Payee Statement Required to Claim Education Benefits

12/28/2015 - By Zachary Farrington

As of 2016, the American Opportunity Tax Credit (the HOPE Credit) and the Lifetime Learning Credit, as well as the tuition and fees deduction, will not be allowed unless the taxpayer possesses a valid information return (Form 1098-T, Tuition Statement) from the educational institution.

Note: Under current law, the tuition and fees deduction expired on January 1, 2015; however the expectation is that another "extenders" bill will extend it, which presumably is the reason it was included under these new reporting rules.

Many taxpayers claim the tax benefit for educational expenses. However, in March 2015, the Treasury Inspector General for Tax Administration (TIGTA) estimated that more than 3.6 million taxpayers received some $5.6 billion in potentially erroneous education credits for tax year 2012. In addition, TIGTA identified nearly 2.1 million taxpayers who received education credits without a Form 1098-T.

In general, educational institutions are required to file Form 1098-T, Tuition Statement, with respect to each individual who is or has been enrolled for any academic period during the calendar year. Institutions may elect to report either the payments received or the amounts billed on a calendar-year basis.

Institutions that report based on payments received are required to net payments received for qualified expenses during the calendar year against any reimbursements or refunds made during the same calendar year. Also, reimbursements or refunds made during the calendar year that relate to payments of qualified expenses that were reported for a prior calendar year are reported separately.

Institutions that report based on amounts billed are required to net the amount billed against any reductions in charges for qualified expenses made during the same calendar year. Any reductions in charges made during the calendar year that relate to amounts reported as billed for a prior calendar year must be reported separately.

The information statement must be furnished to the individual before February 1 of the year following the calendar year in which the payments were received or the reimbursements, refunds or reductions were made.

This effectively means that taxpayers claiming these education incentives will have to wait to file their returns until they receive Form 1098-T, which could impact individuals who file early in the filing season in anticipation of a large refund; or who file early in order to provide accurate tax information for the Free Application for Federal Student Aid (FAFSA).

If you, or your dependents, pay qualified tuition costs and can otherwise claim education tax benefits, please remember to include the Form 1098-T in your paperwork to us for preparation of your return.

In the meantime, if you have any questions about this rule or education benefits in general, please call our office at (800) 477-7458. We are here to help.