We’re getting deep into tax preparation season, and during a year that the Internal Revenue Service expects to be busier than most, institutions and students are encouraged to organize and submit documentation as promptly as possible.
Among the most important items for institutions to prepare is Form 1098-T, Tuition Statement. This form can help determine if students or their parents are eligible for tax credits related to their qualified tuition payments or education expenses, making it vital part of their tax return.
With deadlines approaching, below are six important facts for institutions to know:
- Deadlines: Institutions play an important role with this form, as federal law requires them to mail Form 1098-T by January 31 to all students who paid qualified tuition and other related educational expenses during the previous calendar year. A copy of all Forms 1098-T issued to students must also be filed with the IRS. Paper filed forms must be filed by February 28 and electronically filed forms by March 31.
- What to report: The IRS continues to require institutions to complete Form 1098-T using only Box 1 for tuition payments. Box 2 reporting of amounts billed is not an option and has been grayed out on the form.
- What is considered QTRE: Only Qualified Tuition Related Expenses (QTRE) should be reported on the 1098-T. Per the IRS, qualified expenses are amounts paid for tuition, fees and other related expenses for an eligible student that are required for enrollment or attendance at an eligible educational institution. The expenses must be paid for an academic period that starts during the tax year or the first three months of the next tax year.
- What is not QTRE: The following expenses are not considered QTRE: room and board, insurance, medical expenses (including student health fees), transportation, and related personal, living or family expenses.
- HEERF: Higher Education Emergency Relief Fund (HEERF) grants received by a student are considered payments of any applicable QTRE, and the amount of HEERF grant received by each student is not to be reported as a grant or scholarship on the form. This allows the HEERF grant payments to be eligible expenses for the Lifetime Learning Credit and the American Opportunity Credit on the personal income tax return of each student.
- Penalties: Failure to file timely and accurate forms 1098-T can result in large penalties for institutions and are assessed on a per-form basis. Penalties can max out at several hundred thousand dollars, depending on the size of the school.
As tax season continues and more deadlines approach, please feel free to reach out to McClintock & Associates to discuss any questions or concerns.