If you are or were a college student in the previous tax year, you may receive an informational document called a 1098-T form from the institution you attended. This is referred to as an "informational" document because it provides information you can use to complete your annual federal income tax filing, but you are not required to file it along with your taxes. You should, however, keep a copy along with copies of your tax filing in case any questions arise.
Tax Payer Relief Act
Thanks to the Taxpayer Relief Act of 1997, colleges and universities have to send 1098-T forms to their students each year. This form lists qualified tuition and related expenses the school received from the student or her parents as well as other qualifying expenses applied to her bill in the previous tax year. This will help you determine if you are eligible for certain educational tax credits. The educational institution must mail the form by January 31st of each year. Schools also report this information to the Internal Revenue Service.
Qualified Tuition and Related Expenses
The amount listed on your 1098-T may not be everything you paid to your school during the year but will include only what the IRS considers qualified expenses billed and/or received. Qualified expenses include tuition and fees you have to pay to be enrolled at your educational institution. Student activity fees, book fees and payments for course-related equipment are included if you paid them to the school, and the amounts were required for enrollment. Payments to live in the dorm, at home, on campus or off campus; for food, travel or medical insurance do not fall into the qualified expense category. For some educational credits, the costs of required books and equipment count as educational expenses, even if you don't pay them directly to the school. However, you won't find these amounts on your 1098-T form and will need to retain your receipts as proof.
Your 1098-T form will include a range of information related to your educational expenses. This includes the name, address and phone number of the school you attended in box A; the school's taxpayer ID number in box B; your Social Security number in box C and the amount the school received for qualified expenses in boxes 1 and 2, respectively. Scholarship and grant money awarded to you appears in box 5. Adjustments made to tuition and fees that apply for a previous tax year are in box 4. There are also checkboxes that indicate whether you were enrolled at least half-time or were seeking a graduate degree or certificate in the applicable tax year.
The information reported on your 1098-T Form can help you determine your eligibility for any available education-based, federal tax credits, such as the American Opportunity Tax Credit and the Lifetime Learning Credit. Allowable Education-based tax credits depend on your income, or the income of the taxpayer who claims you as a dependent, and the expenses paid during the tax year for your education. You can use the information provided on Form 1098-T to complete IRS Form 8863 to take the credit available to you. List the amount provided in box 1 of your 1098-T (qualified expenses paid) on line 1 and 3 of Form 8863, subtracting any refunds or tax-free educational credits that aren't included on this form. If you determine that you are eligible for a credit, include form 8863 with your federal tax return.
Taxable Scholarships and Grants
According to the IRS, scholarships, fellowships and grants may be taxable in some cases.Generally, you will not have to pay taxes on these amounts if you use the money to pay qualified expenses as a degree-seeking student. Your 1098-T form will show any qualified payments you used your fellowship or grant to pay. If the money you received is considered wages of some sort, such as a scholarship provided in return for teaching or research performed, you may have to pay taxes on it.
Jordan Meyers has been a writer for 13 years, specializing in businesses, educational and health topics. Meyers holds a Bachelor of Science in biology from the University of Maryland and once survived writing 500 health product descriptions in just 24 hours.