Jenzabar recommends all clients use the Generate 1098-Ts process on a quarterly basis to identify possible data problems and correct them before the final reports are sent to the IRS.
Educational institutions that are eligible to participate in the Department of Education's student aid programs can issue 1098-T forms, including colleges, universities, vocational schools, and other eligible post-secondary education institutions.
The 1098-T form is an information return. The IRS requires schools that make reportable transactions to file the information. The school is responsible for creating reports for how much qualified tuition and expenses a student (or a student's parents) paid during the tax year. A copy must be provided to the IRS and the student. The IRS will use the 1098-T form, in combination with income, deductions, and credits to ensure the taxpayer is eligible for credit.
Educational institutions that issue 1098-T forms are required to provide a copy of the form to the student by Jan. 31 of the year following the tax year in which the expenses were paid. The form isn't due to the IRS until Feb. 28 if filed by mail or March 31 if filed electronically.
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Jenzabar recommends all clients use the Generate 1098-Ts process on a quarterly basis to identify possible data problems and correct them before the final reports are sent to the IRS. |
The Taxpayer Relief Act of 1997 established two education tax credits:
The Hope Scholarship credit is
for students enrolled in one of the first two years of post-secondary
education and carry at least a half-time workload while pursuing
an undergraduate degree, certificate, or other recognized credential.
The Hope tax credit is effective for tuition expenses paid beginning
on January 1, 1998.
The amount of the Hope credit is 100 percent of the first $1,000
in qualified education expenses paid and 50 percent of the next
$1,000. The maximum amount that can be claimed for qualified education
expenses paid on or after January 1 through and including December
31 is $1,500 or the amount of tax liability, whichever is less.
Go to http://www.fafsa.com
for further additional information.
The Lifetime Learning credit is
for students taking one or more classes from a post-secondary
institution to pursue either an undergraduate or graduate degree,
certificate or other recognized credential, or to acquire or improve
job skills.
The amount of the Lifetime Learning credit is 20 percent of the
first $5,000 paid in qualified education expenses. The maximum
amount that can be claimed for qualified education expenses paid
on or after July 1 through and including December 31 is $1,000
or the amount of tax liability, whichever is less.
If the student is claimed as a dependent for federal income tax purposes, that student's taxpayer may claim credit using the IRS Form 8863, Education Credits. Additional requirements and conditions apply, including income ceilings on eligibility and possible reductions to the amount of qualified education expenses that can be claimed. For information about these credits, see IRS Publication 970, Tax Benefits for Higher Education and IRS Announcement 97-60, Consumer Guidance on Education Tax Incentives. These documents as well as IRS Form 8863 are available at www.irs.gov or at 1.800.829.1040.
The American Recovery and Reinvestment Act (ARRA) modified the Hope Scholarship Credit and renamed it to "American opportunity tax credit” also know as AOTC. The AOTC modifies the existing Hope Scholarship credit, making the credit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. This tax credit applies to more parents and students for college expenses.
The credit adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four instead of two post-secondary education years.
Many of those eligible qualify for the maximum annual credit of $2,500 per student.
The full credit is available to individuals whose modified adjusted gross income is $80,000 or less or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.
For more information, see Publication 970, Tax Benefits for Education.
The IRS allows you to report qualified tuition and related expenses based on payment or the amount billed to the student's account. The Accounts Receivable module provides the methods and calculations for 1098-T processing to report qualified tuition and related expenses based on the amount billed to the students' account. Box 1 (Payments received for qualified tuition and related expenses) should be reported. The IRS has issued the following rules and regulations regarding what constitutes qualified tuition and related fees.
Tuition and Related Fees:
If the fee is required for attendance, then the fee qualifies and should be reported on the 1098-T form.
If the fee is optional, then the fee does not qualify and should not be reported on the 1098-T form.
Books, Supplies, Equipment:
If books, supplies, and equipment must be purchased from the institution, then the purchases qualify and should be reported on the 1098-T form.
If books, supplies, and equipment can be purchased from other sources (i.e., other bookstores, supply stores, etc.), then the purchases do not qualify and should not be reported on the 1098-T form.
Student Activity Fees:
If the fees are required for enrollment, then the fee qualifies and should be reported on the 1098-T form.
If the fees are not required for enrollment, then the fee does not qualify and should not be reported on the 1098-T form.
The IRS does not consider the following types of charges qualified expenses:
Sports or hobby-related expenses, UNLESS it is part of the student's degree program
Personal Expenses, including room, board, transportation, insurance amounts, medical expenses, and health fees.
Are there any changes to the tax credits for college expenses?
The American opportunity tax credit, which expanded and renamed the already-existing Hope credit, can be claimed for tuition and certain fees you pay for higher education from 2009 to present day.
The Hope credit originally applied only to the first two years of college. Has that changed?
Yes. The American opportunity tax credit can be claimed for expenses for the first four years of post-secondary education.
How much is the American opportunity tax credit worth?
It is a tax credit of up to $2,500 of the cost of qualified tuition and related expenses paid during the taxable year. That is a $700 increase from the previous Hope credit.
What education expenses qualify for the American opportunity tax credit?
The term "qualified tuition and related expenses" has been expanded to include expenditures for "course materials." For this purpose, the term "course materials" means books, supplies and equipment needed for a course of study whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance.
Does an expenditure for a computer qualify for the American opportunity tax credit?
Whether an expenditure for a computer qualifies for the credit depends on the facts. An expenditure for a computer would qualify for the credit if the computer is needed for enrollment or attendance at the educational institution.
How is the American opportunity tax credit calculated?
Taxpayers receive a tax credit based on 100 percent of the first $2,000 of tuition, fees and course materials paid during the taxable year, plus 25 percent of the next $2,000 of tuition, fees and course materials paid during the taxable year.
How will the American opportunity tax credit affect the taxpayer's income tax return?
They can reduce their tax liability one dollar for each dollar of credit for which they're eligible. If the amount of the American opportunity tax credit for which they're eligible is more than their tax liability, the amount of the credit that is more than their tax liability is refundable to them, up to a maximum refund of 40 percent of the amount of the credit for which they’re eligible.
Who is eligible for the American opportunity tax credit?
A taxpayer who pays qualified tuition and related expenses and whose federal income tax return has a modified adjusted gross income of $80,000 or less ($160,000 or less for joint filers) is eligible for the credit. The credit is reduced ratably if a taxpayer’s modified adjusted gross income exceeds those amounts. A taxpayer whose modified adjusted gross income is greater than $90,000 ($180,000 for joint filers) cannot benefit from this credit.
What is "modified adjusted gross income" for the purposes of the American opportunity tax credit?
It is the taxpayer's adjusted gross income increased by foreign income that was excluded, and by income excluded from sources in Puerto Rico or certain U.S. possessions.The credit is claimed using Form 8863, attached to Form 1040 or 1040A.
The America opportunity tax credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education.
No. A student cannot claim the tuition and fees tax deduction in the same year that they claim the American opportunity tax credit or the lifetime learning credit. The student must choose among them. Students also cannot claim the tuition and fees tax deduction if anyone else claims the American opportunity tax credit or the lifetime learning credit for you in the same year. A tax deduction of up to $4,000 can be claimed for qualified tuition and fees paid. Though the credit usually results in greater tax savings, taxpayers should calculate the effect of both on the tax return to see which is most beneficial — the tax credit or the deduction. Often tax software automatically compares the two.
Is there a new benefit that applies to college savings plans (commonly known as 529 Plans)?
Yes. A qualified, nontaxable distribution from a Section 529 plan includes the cost of the purchase of any computer technology or equipment or Internet access and related services, if such technology, equipment or services are to be used by the beneficiary of the plan and the beneficiary's family during any of the years the beneficiary is enrolled at an eligible educational institution.
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All 1098-T forms will display legal names for any selected IDs. Users will not be able to access the Generate 1098-T's window unless they have the appropriate permissions to view legal names. |
Prepare 1098-T Data |
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Download the 1098t.pbl from My Jenzabar. | ||
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Verify the correct tax year is setup on the 1098-T Magnetic Media Control window. | ||
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Review Control Definitions. | ||
| Generate and Review 1098-T Forms | |||
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Extract and review 1098-T data. | ||
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Validate 1098-Ts. | ||
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If you receive an Excluded Transactions or Included Transactions audit report, complete the Analyze 1098-T steps below. | |
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Generate 1098-Ts. | ||
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Do not send the generated 1098-T forms until all issues on the audit reports are corrected or verified as correct. | |
| Analyze and Correct 1098-T Data | |||
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Review the Excluded Transactions, Included Transactions, and Summary audit reports to ensure the data on the 1098-T forms is accurate. You may need to make edits to data based on these reports. | ||
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Use the audit reports and the forms in the 1098t.pbl file to correct data. | ||
| Re-Generate 1098-T Forms | |||
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Repeat the steps to generate your 1098-Ts until no errors are produced. | ||
| Send 1098-Ts | |||
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Use
the Publish to Students button to upload PDF versions of the
1098-Ts to the Campus Portal for students that have opted-in
to electronic statements. Students can receive an email notification
that their forms are available online.
Print and mail forms to students that prefer printed forms. |
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Send the Magnetic Media file to the IRS. | ||
1098-T Magnetic Media Control Window
Publication 970, Tax Benefits for Education
Publication 1220, Specifications for Electronic Filing of Forms
https://fsapartners.ed.gov/knowledge-center
