Tuition reimbursement from employer- education tax credit

Forum|Forum|3 years ago
February 2, 2023
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My school charges my student account and my employer directly makes the payment. My employer paid $9,000 for my tuition and books. My employer did a “tuition gross-up” to cover the taxes, so the amount paid by my employer was $13,000.

My employer added the $13,000 to my Box 1 on my W-2. Because the amount was added to my gross income, would I be able to claim the American Opportunity Tax Credit even though my employer covered the amount in taxes by doing a tuition gross-up?

Thank you in advance!

Hal_Al

Employee

Q. Would I be able to claim the American Opportunity Tax Credit (AOTC) even though my employer covered the amount in taxes by doing a tuition gross-up?

A. Yes. That entire $13,000 is your taxable income. As such, you effectively paid your tuition, not your employer.

You say the employer paid $9000 for tuition and books and added the whole $9000 (plus a tax allowance) to your income. The IRS allows employers to give their employees up to $5250 of reimbursement tax free, if they set up a qualified plan. You should verify that the first $5250 wasn't tax free. If it was, then you can only count $3750 (9000 - 5250 = 3750) for the AOTC.

trumpet365Author

Thank you so much for the quick response!

I believe they added the full $13,000 to my income (based on what my paystub shows). When filing my taxes through TurboTax, do I add the $9,000 when it asks about employer provided assistance OR can I just add the $9,000 when it asks if the amount under Box 5 on my 1098-T was added to my gross income?
(In other words, where do I put that the $9,000 on my 1098-T under box 5 was reported on my gross income?)

Hal_Al

Employee

Q. Do I add the $9,000 when it asks about employer provided assistance?

A. No. Do not enter taxed employer assistance. Only enter tax free assistance (typically $5250).

Q. Or can I just add the $9,000 when it asks if the amount in Box 5 on my 1098-T was added to my gross income?

Verify that box 5 includes employer assistance. It shouldn't. But sometimes schools mistakenly put it there. When asked that question, put the amount that is included in box 5 and taxed (probably $9000).