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dossladi913
December 31, 2020
Question

Taxes and education filing

  • December 31, 2020
  • 1 reply
  • 0 views

Im enrolled in online school at AIU and i received financial aide but none of the funds came to me directly. All the money went to my school. I wanted to know do i put my school on my taxes.

    1 reply

    Hal_Al
    Employee
    December 31, 2020

    Simple answer: No.

    Scholarships that pay for qualified educational expenses (QEE - tuition, fees, books and other course materials) is tax free.  Expenses paid by tax free scholarship are not eligible for claiming a tuition credit or deduction.

     

    But, there is a tax “loophole” available. The student reports all his scholarship, up to the amount needed to claim the American opportunity credit, as income on his return. That way, the parents  (or himself, if he is not a dependent) can claim the tuition credit on their return. They can do this because that much tuition was no longer paid by "tax free" scholarship.  You cannot do this if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses.

    Using an example: Student has $10,000 in box 5 of the 1098-T and $8000 in box 1. At first glance he/she has $2000 of taxable income and nobody can claim the American opportunity credit. But if she reports $6000 as income on her return, the parents can claim $4000 of qualified expenses on their return.