Scholarships, Grants, and Tuition Discounts

• Scholarships are only tax-free if you are a Candidate for a Degree at an Eligible Educational Institution.

  Candidate for a degree:

  • Attend a primary or secondary school or are pursuing a degree at a college or university
  • OR:
    • Attend an educational institution that:
      • Provides a program that is acceptable for full credit toward a bachelor’s or higher degree
        • OR
      • Offers a program of training to prepare students for gainful employment in a recognized occupation;
    • AND
      • Is authorized under federal or state law to provide such a program
        • AND
      • is accredited by a nationally recognized accreditation agency

  Eligible Educational Institution:

  • One whose primary function is the presentation of formal instruction
    • AND
  • that normally maintains a regular faculty and curriculum
    • AND
  • has a regularly enrolled body of students in attendance at the place where it regularly carries on its educational activities.

American Opportunity Credit

• $2,500 per student for up to 4 years
• At least Half-time student for one academic period.
• Pursuing a degree or another recognized educational credential
• Not convicted of a drug felony

Eligible Educational Institution:

• An eligible educational institution is generally any accredited public, nonprofit, or proprietary (privately owned profit-making) college, university, vocational school, or other postsecondary educational institution.

  • AND

• The institution must be eligible to participate in a student aid program administered by the U.S. Department of Education.

  Virtually all accredited postsecondary institutions meet this definition.

  An eligible educational institution also includes certain educational institutions located outside the United States that are eligible to participate in a student aid program administered by the U.S. Department of Education.

Lifetime Learning Credit

• Must receive a 1099-T

  • Exceptions:
    • Exception 1:
      • If a student's educational institution isn't required to provide a Form 1098-T to the student, you may claim the credit without a Form 1098-T if you otherwise qualify,
        • AND
      • can demonstrate that you (or a dependent) were enrolled at an eligible educational institution
        • AND
      • can substantiate the payment of qualified tuition and related expenses.
    • Exception 2
      • if the student attended an eligible educational institution required to furnish Form 1098-T but the student doesn't receive Form 1098-T before you file your tax return.
      • Precondition:
        • After January 31, 2022, but before you file your 2021 tax return, you or the student must request that the educational institution furnish a Form 1098-T.
        • You must fully cooperate with the educational institution's efforts to gather the information needed to furnish the Form 1098-T.
        • You must also otherwise qualify for the benefit,
        • be able to demonstrate that you (or a dependent) were enrolled at an eligible educational institution,
        • and substantiate the payment of qualified tuition and related expenses

  Who Can Claim the Credit?

  • Generally, you can claim the lifetime learning credit if all three of the following requirements are met.

    • You pay qualified education expenses of higher education.
      • You pay the education expenses for an eligible student.
      • The eligible student is either yourself, your spouse, or a dependent you claim on your tax return
      • For purposes of the lifetime learning credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution

    Limitation:

    • 90,000 MAGI (AGI + excluded Foreign/PR/AS income)
    • Can’t claim both AOC and LLC

    Eligible Educational Institution

    • An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U.S. Department of Education.
    • It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

Qualified Tuition Program (QTP) - 529 Plans

Eligible Educational Institution defined the same way as above.

Figuring the taxable portion:

• Adjusted Qualified Education Expenses
  • Total QEE LESS:
  • Tax-free educational assistance
    • Includes: Tax free part of scholarships and grants, Veterans Educational Assistance, Tax free part of Pell Grants, Employer provided educational assistance, and any other tax free payments (other than gifts or inheritances) received as educational assistance.
• Summary. The non-taxable portion is the total QEE minus all tax free benefits.
  • Logic: the tax free portion of QEE + QTP distributions covers all educational expenses. Taking out more than that makes the distribution taxable.
• Basis is not taxable.