By Lee Frank, MBA, CPA
The Internal Revenue Service is now enforcing the Form 1098-T reporting changes, first introduced in 2016. The significant change requires educational institutions to report payments received for qualified tuition and related expenses (QTRE), rather than the amounts billed to students.
Prior to this year, educational institutions were able to provide an eligible student with either the amount billed, or the amount paid for tuition and eligible expenses. This led to students claiming a credit on their tax returns for tuition expenses billed, but ultimately never paid. By making this reporting change, the IRS will be able to match up the credits and payments to avoid this loophole.
Who is required to file Form 1098-T?
For purposes of this reporting requirement, an eligible educational institution is a college, university, vocational school or other postsecondary educational institution that is described in Section 481 of the Higher Education Act of 1965 and that is eligible to participate in the Department of Education’s student aid programs. This includes most accredited public, nonprofit and private postsecondary institutions.
When to File
The IRS requires Form 1098-T to be mailed 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, 2019, and electronically filed forms by March 31, 2019.
The IRS now requires institutions to report Form 1098-T using only Box 1 for payments. Box 2 is no longer an option and has been grayed out on the form.
Due to the exclusive use of Box 1, the IRS has issued guidance on the reporting of amounts paid in Box 1.
- The amount reported in Box 1 should be all payments received for the current year or prior year QTRE’s.
- Payments that are received in excess of the QTRE’s are not to be listed on the 1098-T. Examples of these would be payments for room and board or meal plans.
- In the year of a reporting method change, from Box 2 to Box 1, there are no adjustments to list in Box 4. This is because the amounts paid or refunded were never used for reporting a credit in prior years. The IRS is aware there is a potential in the year of conversion that some payments may be duplicated. In all other years, corrections and refunds from prior years are to be reported in Box 4.
Incomplete Filing\Late Filing Penalties
Filing year 2018 is technically the third year of the reporting change requirement. For the prior two years, the IRS has waived penalties related to the reporting of QTRE’s using Box 2 of Form 1098-T. Beginning with 2018, the IRS will no longer allow reporting using Box 2 or waive any penalties for using Box 2.
If you fail to file Forms 1098-T by the due date, without reasonable cause, and/or use Box 2 to report QTRE’s, you will be subject to a penalty. The amount of the penalty is based on when the Form 1098-T is filed and when it is corrected.
The penalty scale is adjusted for inflation with the current amounts being:
- $50 per form if you correctly file within 30 days, maximum penalty $536,000 per year ($187,500 for small businesses).
- $100 per form if you correctly file more than 30 days after the due date but before August 1, maximum penalty $1,609,000 per year ($536,000 for small businesses).
- $260 per form if you file after August 1 or do not file Form 1098-T, maximum penalty $3,218,000 per year ($1,072,000 for small businesses).
The IRS has begun to make Form 1098-T, tuition tax credits and their reporting a highly scrutinized area for compliance. It is imperative that institutions adopt and comply with the new reporting requirements in a timely manner. If your organization has failed to file Forms 1098-T under the most recent method changes, has reporting questions or needs any guidance, McClintock & Associates is always available to assist. If you’re interested in speaking with someone, please contact Lee Frank at 412-257-5980 or firstname.lastname@example.org.