Graduate assistant with W2 and 1098-T scholarship how to get Lifetime Learning Credit

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March 13, 2022
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Son is a graduate assistant and employed by the University as asst football coach. W2: wages $46,000; federal tax w/h $2,100; SS wages $11,700. I knew right away they didn't take out enough fed withholding, even though he claimed 0 on his W4. Why such a discrepancy on wages and SS wages? No clue! 1098-T lines 1 and 5 are: $7,700. No other boxes. He owes almost $2,000 to the IRS!!! The $7,700 is all paid for by the University, who is his employer and as a grad asst must take Master's classes at least half time. The software questions go like this: "What portion of the $7,700 is employer tuition assistance?" "Now tell us if you're including any of your REMAINING grants/scholarships in income?" "Why you might want to do this." In the past, I was told to add $4,000 to income, as it was the maximum to claim the LLC and it did lower the tax burden. I'm still confused! Is $4,000 the amount I add to his income? Please help me understand and tell me where to put the correct figures! Thanks.

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Best answer by RobertB4444

@joshblackis19 If you decide that you have used the scholarship amount to pay for something other than tuition and fees (and qualified materials) then you can enter the amount that was used for that as income. It will be taxed in addition to his W2 income. I'm not sure that it will improve his tax situation. But you can give it a try.

And yes - increase his with holding.

Bsch4477

Employee

His 1098-T suggests that his tuition expense was exactly covered by his scholarship amount in which case there are no qualifying education expenses and so no education credit.

joshblackis19Author

So, I can't add $4,000 of the scholarship, to his income to take the credit? That's the part I never understood, when someone else suggested that? Also, He is technically an "employee" of the college, any idea why his W2 wages and social security wages show such a vast difference? Does that mean anything as far as his taxes, other than he owes A LOT because withholding wasn't nearly enough! Thank you.

ErnieS0

$4,000 is the maximum amount for the American Opportunity Tax Credit. The Lifetime Learning Credit provides a 20% credit up to $10,000 of eligible educational expenses.

It's possible the amount in Box 1 includes educational assistance, meals, lodging or transportation,

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joshblackis19Author

Oh, yeah, that's right LLC is up to $10,000. So, what does the amount in line 1 mean to his taxes? He gets a salary/paycheck which he pays his own living expenses. The scholarship is tuition, fees only. Can he use any of that scholarship figure of $7,700, add to his income and take the credit? I may be dreaming here, but why did the tax software ask me how much of the scholarship do I want to include in income? Thank you.

Hal_Al

Employee

Q. Why such a discrepancy on wages and SS wages?

A. "Regular" students who also work part time for the school are exempt from SS tax. It sounds like, that at some point, his status went from a "student working part time" to being a regular "employee who is also taking classes".

As to the 2nd question, the answer is simple: he is not eligible for either the AOC or the LLC. This is because his tuition was paid for by tax free help. It doesn't matter whether it's called scholarship or employer assistance or tuition remittance (which is what it really is), he can't claim it. Just don't enter the 1098-T. Technically the school erred in reporting the 1098-T that way (but it's done often).

The famous "loop hole" of declaring some of the "scholarship" taxable in order to claim the credit is not available in this case as the "scholarship" is restricted to tuition. Technically, the loop hole is not available because the assistance is not scholarship, but tax free assistance. Besides, grad students are only eligible for the LLC, so there wouldn't be much, if any, savings. The LLC is only worth 20%. His marginal tax rate is 22%. He might even have to pay more tax (I didn't do the calcs).

joshblackis19Author

Hi, well it's not the answer I wanted, but what you tell me makes sense:( He owes almost $2,000. Shouldn't he call the school financial office and have them take out "more" federal taxes? It's so low, the tax software is trying to make him pay an "underpayment" penalty!

And one more "angle." Could he claim the scholarship $7,700 as employee expenses? Of course, he didn't pay for the tuition, but I'm trying, lol. Poor kid, has no other deductions or write-offs. Thank you very much for the information! I appreciate it.

Hal_Al

Employee

Yes, he submits a new w-4 to his employer to increase withholding.

An underpayment penalty is due if:

- 1. You owe at least $1,000 in tax for the current tax year,

and
- 2. your withholding and credits is less than 90% of the tax to be shown on your current year’s tax return and 100% of the tax shown on your prior year’s tax return.

Q. Could he claim the tuition (scholarship) $7,700 as employee expenses?

A. No. 1. because he didn't pay it. 2. Employee expenses are no longer deductible. 3. Even under the old (pre 2018), education as an employee expense was very restricted