Colleges in the United States send Form 1098-T or tuition statements to their students. This tax Form is mandatory to file the taxes, and it increases the tax refund. It qualifies the students for education-relevant tax benefits, lifetime learning credit, deduction on tuition fees, etc.
What is Form 1098-T?
This tax Form gives the amount, the taxpayer paid for qualified educational expenses during the tax year. Eligible institutions like colleges, vocational schools, and universities send this Form to students who participate in their federal student aid programs.
The information given on this form qualifies students for education-related tax benefits such as tax deductions and credits. It also reduces the amount of taxes owed and also increases the tax refund. These adjustments also reduce reported AGI. They lower the taxable income and increase the tax refund. These institutions send this Form to both the IRS and the students.
Qualified expenses in Form 1098-T
Not all education-related expenses come under qualified expenses. Personal expenses, housing, and transportation should not be a part of the Form. Tuition fees and expenses on course material will qualify for a tax deduction. Based on these qualified expenses, you can get two different education credits. These are lifetime learning credit and the American Opportunity Tax Credit.
- The American Opportunity Tax Credit:
This credit is available for undergraduates in their first few years of college. The eligible should be enrolled in the institution, at least half-time in the academic period during the tax year. These credits are limited to students over age 24. Parents of students under this age can apply for this credit on their tax returns.
This credit can help them save at least $2500 on their educational expenses and is also refundable. If your credits are more than the taxes you owe, you get a refund of about $1000 from the IRS.
2. The lifetime learning credit:
This credit is available for students who have taken at least one class at any eligible institution. There is no need for the student to enroll in any degree program and take any specific course to qualify. The tuition fees, books, and supplies will come under this credit. It offers the maximum benefit of $2000. The credit is not refundable. Thus, it won’t increase the tax refund.
Tax Form 1098-T thus, allows taxpayers to avail tax deductions up to $4000 for higher education expenses. It is also capable of lowering the AGI and potentially enhancing the tax refund. But taxpayers can claim only one educational tax benefit for a student per year. But they can claim both the tax credit and deduction in tuition fee for the same student for the same tax year.
The Tax Form 1098-T for tuition statements helps in increasing the tax refund of the taxpayers. Educational institutions will send this tax Form to students by January 31st. They will file a copy of the same with the IRS by February 28th. They can e-file Form 1098-T until March 31st during tx year. You can avail detailed information about Form 1098-T and tax refunds and e-filing requirements at Tax2efile.