Telling Tips is a series of articles from local experts to help you save money, make better decisions and plan for a better future.
And if this form is wrong, your tax return may be wrong. And you may be entitled to a refund.
The lucrative American Opportunity Education Credit is based on the amounts you paid for college tuition and related fees. However, one of the forms used in the preparation of your college tuition deduction or credit, the 1098-T [PDF], which is provided by the college, may not show the correct figures. If it is not correct, you may want to file an amended return and lower your tax liability.
1098-T, Box 1, ‘Payments Received for Qualified Tuition and Related Expenses.’ Included in this box is suppose to be ‘total payments’ from any source. This means not only from the student, and/or parent, but also student loans, which went directly to the college from the lender. This figure is not supposed to include insurances or student health fees.
1098-T, Box 2, ‘Amounts Billed for Qualified Tuition and Related Expenses.’ For 99.99 percent of us, this box is totally useless because we are ‘cash basis’ taxpayers, and record expenses when they are paid, not when we receive a bill. Included in this box is usually the amounts the college billed you in December for the spring semester — January, February, and March. You don’t care when or how much is billed. You only care about what you paid. Ignore this box.
1098-T, Box 4, ‘Adjustments Made for a Prior Year.’ If there is a figure in this box, you may have to file an amended return to report that you overstated the tuition and fees deduction of a prior year. If it reduces your education credit claimed in the prior year, no amended return is required. The difference is added to the current year’s tax liability. If there is an adjustment, it is incumbent upon you to pay back the excess. You don’t want to add to the national deficit, do you?
1098-T, Box 5, ‘Scholarships or Grants.’ The institution records these benefits you received in this box. These generally reduce your payments to the college. Again review the tuition statement carefully. It is your money.
1098-T, Box 6, ‘Adjustments to Scholarships or Grants for a Prior Year.’ This may also require you to file an amended return for a prior year.
What To Do?
For now, examine all the bursar’s statements for 2010 and 2011, and make sure that the total you paid by cash, check, and student loans agree to Box 1. If not, and if you used the amount in box 1, consider filing an amended tax return.
Second, for 2012, check the figures when the form arrives. I’ve noticed that some colleges and universities attach detail to the 1098-T, so your job is easier.
In examining the form for some clients this past tax season, I saw that boxes 1 and 2 were blank, so I told my client that they did not pay any tuition during the year, but my client insisted they paid tuition based upon actual payments. The tuition statements proved payments were made. If I just took the 1098-T and didn’t discuss it with them, they would have paid too much tax!
As I noted above, it’s a lucrative tax credit. Don’t be short-changed.
The moral: Question not only the college, but your tax preparer.
Have a good week.
Joseph Reisman, of Joseph S. Reisman & Associates, has been serving tax prep and business accounting expertise from his Coney Island Avenue office for more than 25 years. Check out the firm’s website.