What is Form 1098-T and why is it important to students?

Are you a university student, or a parent of one, and have you paid for tuition for qualified studies? If so, then in addition to the paperwork you have done for the university, now you must do another one, but with the United States tax authorities. Knowing what the 1098-t form is can keep you from losing money.

Form 1098-T is necessary to claim certain credits. In case you didn’t know, colleges use this form to report the amount a student (or their parents) has paid for tuition or expenses related to a qualifying education program during a specific fiscal year.

In this sense, educational institutions are required to deliver a 1098-T form to students before January 31 of the calendar year following the fiscal year in which the expenses were paid.

Next, we are going to explain everything you need to know about this form, what to do with it, and when the federal tax return is filed.

What should I know about Form 1098-T?

The form 1098-T This is what is known in English as “information return”. The Internal Revenue Service (IRS) requires businesses that conduct “reportable transactions” to file information returns and provide a copy to the other party involved in the transaction.

For example, people with a mortgage will likely receive a Form 1098 from their lender reporting how much mortgage interest they paid during a tax year. With a 1098-T, the company, in this case the university, reports the amount of tuition and related expenses that you (or your parents) paid during the tax year.

The IRS uses these forms to review information return data against income, deductions, and credits reported on individual tax returns. In this sense, If a taxpayer applies for a student loan on their federal tax return and the IRS does not have a 1098-T in their system, then the IRS could follow up on that specific taxpayer’s status to make sure they are indeed eligible for the loan. credit.

Who can issue a 1098-T form?

Educational institutions that are eligible to participate in the Department of Education’s student aid programs can issue Form 1098-T. This includes colleges, universities, vocational schools, and other institutions of higher education. In addition, insurers can also issue it.

When must the 1098-T form be filed?

Colleges and other institutions that issue Form 1098-T must provide a copy of it to the student by January 31 of the year following the fiscal year in which the expenses were paid. Therefore, the 1098-T form for tuition paid in 2019 is supposed to be in the hands of the student by January 31, 2020.

However, the form is not due to the IRS until February 28 if filed by mail, or March 31 if filed electronically. That way, if a student receives an incorrect 1098-T, they can have time to contact the college or university and request a correction before the institution sends the information to the IRS.

Will I receive a 1098-T form?

Some information returns have minimum filing thresholds. For example, if you pay interest on a student loan, the lender is not required to issue Form 1098-E unless you paid $600 or more in interest during the year.

But Form 1098-T doesn’t have a minimum threshold, so schools are required to issue it if you had any qualifying education expenses, whether it’s tuition, fees, or course materials that are required for enrollment. But there are exceptions.

In some cases an educational institution does not need to issue a 1098-T, especially when:

  • A course you took that had no credit weight.
  • You are a non-resident alien (although you can request the form anyway).
  • Tuition and fees were waived by your school, or covered entirely by one or more scholarships.
  • An employer or a government agency, such as the Department of Veterans Affairs or the Department of Defense, covered the tuition and fees in full.

If you think you should have received a 1098-T but didn’t, it’s a good idea to contact your school and check the mailing address they have on file.

“From a practical standpoint, the college or university will send the 1098-T to the address on file, which can be the student’s campus address,” says Steven Rossman, CPA and shareholder of Drucker and Scaccetti, a private equity firm. tax consulting with offices in Philadelphia and Scranton, Pennsylvania. “Sometimes the student or their parents may need to go to the university portal or go to the university accounting department to obtain the 1098-T form.”

What information is on a 1098-T?

Unlike many forms, the 1098-T is relatively short, since it has 10 numbered boxes, plus basic identifying information, compared to 17 on, say, a 1099-INT.

This is what you find in each box.

Archive information

On the left side of the 1098-T, the institution issuing the form puts its name, address, phone number, and tax identification number. There is also a box where you put the student’s account number.

student information

Also on the left side of the form are boxes for the student’s name, address, and tax identification number (such as a social security number).

box 1

This box shows the total amount of all payments the school received during the calendar year, less any refunds or returns.

Boxes 2 and 3

Until 2017, schools could report expenses in two ways: based on what the student paid during the year or based on what the school billed. As of 2018, the IRS removed the second option. In the 2018 version of the form, Box 2 is grayed out and the school uses Box 3 to indicate if they changed their expense reporting method. In the 2019 version of the form, both boxes are shaded.

Box 4

The school will complete this box if they need to report an adjustment made for a prior year (but after 2002), such as a refund issued in 2018 for tuition paid in 2017.

Boxes 5 and 6

Box 5 lists the scholarships or grants that the school processed and applied to tuition during the fiscal year. Box 6 shows the adjustments made to scholarships or grants reported in a previous year (but after 2002).

Box 7

The school will check this box if part of the tuition the student paid in the fiscal year was applied to an academic term beginning in the first quarter of the following year. For example, a payment made in December 2019 for tuition for the semester beginning in January 2020.

box 8

In the event that the student is enrolled at least half time during any academic period that began in the calendar year, the school must check this box.

Box 9

This box indicates if the student studied postgraduate studies.

box 10

This box is only used by insurers that issue reimbursements or refunds for qualified tuition and related expenses.

What should I do with my 1098-T?

When you’re ready to file your federal income tax return, make sure you have your 1098-T form handy, if you received it. It can help you calculate two potentially valuable educational credits: the American Opportunity Tax Credit and the Lifetime Learning Credit.

“Information reported on Form 1098-T may be used to claim credits on the student’s or parent’s tax return”, says Rossman keenly, so it’s a good idea to research the requirements to decide who’s eligible to claim education credits.

Just make sure you don’t duplicate them by claiming them on both your parents’ return and your own (if you file as a dependent). This could trigger a notice from the IRS. Therefore, evaluate what is the best way to apply for possible credits before filling out your federal returns.

In summary

Higher education isn’t cheap, but certain tax breaks can help defray the costs of earning a college degree. If you receive a 1098-T form, it’s important to know what to do with it. Information from your 1098-T could help you claim valuable education credits.

You can learn more about the benefits of education taxes at IRS Publication 970.

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