Education Benefits

1. Education Benefits NTTC Webinar – Oct 2015

2. New Approach • Dept of Treasury interpretation • Takes a more time to train • Some sites see VERY few students • Therefore: • Train so that counselors understand the issue. • Have resources available NTTC Webinar – Oct 2015

3. Resources • Pub 4012 Tab J (especially J-2 and J-3) • Education Cookbook • Education Calculator • Education Spreadsheet (if you can’t use the Calculator) NTTC Webinar – Oct 2015

4. Student Documents NTTC Webinar – Oct 2015

5. Form 1098-T • For 2016, will be required by IRS for both credits and T&F adjustment • For 2015, is recommended by Tax-Aide for American Opportunity Credit • Dollar amounts are frequently wrong NTTC Webinar – Oct 2015

6. Review Tuition Statement— Form 1098-T Grants and Scholarships 15 Total Paid: 1 or Amounts billed: 2 Status Indicators: Boxes 8 and 9 NTTC Webinar – Oct 2015

7. Review Tuition Statement — Form 1098-T • Need to see Form 1098-T BUT • Amounts MUST be verified with taxpayer • Best source is the student’s statement of account with the school • Usually available on line NTTC Webinar – Oct 2015

8. Student Statement NTTC Webinar – Oct 2015

9. Student Statement NTTC Webinar – Oct 2015

10. Student Statement Bookstore charges NTTC Webinar – Oct 2015

11. Education Benefits Benefits in this lesson cannot be determined until the rest of the return has been completed. NTTC Webinar – Oct 2015

12. Many Different Benefits • Congress has passed many different laws giving tax benefits for education • Summarized in 4012, Pages J-2 and J-3 • Sometimes different benefits use the same words but have different definitions for them NTTC Webinar – Oct 2015

13. Many Different Benefits—Pub 4012 Page J-2 NTTC Webinar – Oct 2015

14. No Double Dipping • Each student can claim (or be claimed for) only one of these three benefits • American Opportunity Credit • Lifetime Learning Credit • Tuition and Fees Adjustment NTTC Webinar – Oct 2015

15. No Double Dipping • Different credits or adjustment can be claimed for different students • Example: • Taxpayer’s dependent child is full-time college student—American Opportunity • Taxpayer takes one job-related course at local college—Lifetime Learning NTTC Webinar – Oct 2015

16. No Double Dipping • Unused expenses can be applied to other benefits • Same expenses cannot be used twice NTTC Webinar – Oct 2015

17. No Double Dipping • In other words, qualified expenses must be reduced by amount paid with: • Tax-free scholarships and grants • Employer- or VA-provided educational assistance • Any other nontaxable payments (other than gifts, bequests, or inheritances) NTTC Webinar – Oct 2015

18. No Double Dipping • If grant or scholarship conditions allow: • Student can choose to pay tax on all or part of the scholarship/grant, then it won’t be tax-free, and • Student or parents can use all expenses toward education credits. • Larger education credit may offset added tax NTTC Webinar – Oct 2015

19. Exceptions to the Rules and Exceptions to the Exceptions NTTC Webinar – Oct 2015

20. Refundable American Opportunity Credit • Rule: 40% of American Opportunity Credit is refundable • Exception: If student is not claimed as a dependent but is under age 24, credit is not refundable • Excptn to Excptn: See next two slides (Page J-8) NTTC Webinar – Oct 2015

21. Claiming AOC – Under Age 24 None of American Opportunity Credit is refundable if • Taxpayer claiming credit is • under age 18 -OR- • age 18 at end of year, and their earned income was less than one-half of their own support -OR- • a full time student over 18 and under 24 and their earned income was less than one-half of their own support AND ... NTTC Webinar – Oct 2015

22. Claiming AOC – Under Age 24 • Taxpayer has at least one living parent, AND • Taxpayer does not file a joint return • But can still claim nonrefundable portion of the American Opportunity Credit! NTTC Webinar – Oct 2015

23. Business Expense Exceptions • Does not have to be at qualifying education institution • Qualifying Expenses include • Transportation • Travel NTTC Webinar – Oct 2015

24. No Double Dipping • Rule: Same expenses cannot be used in two places • Exception: Expenses used to waive or reduce additional tax on early IRA distribution can also be used elsewhere NTTC Webinar – Oct 2015

25. Interaction between Benefits and Other Taxes Some Benefits Affect AGISome Don’t NTTC Webinar – Oct 2015

26. Interaction of Benefits • Some Benefits Reduce Tax • American Opportunity Credit • 100% of first $2,000/student • 25% of second $2,000/student • Lifetime Learning Credit • 20% of first $10,000/return NTTC Webinar – Oct 2015

27. Interaction of Benefits • Others reduce AGI, affecting • Earned income credit • Premium tax credit and shared responsibility payment • Child and dependent care credit • Retirement savings credit • State tax return NTTC Webinar – Oct 2015

28. Interaction of Benefits • Taxpayer can choose • Where to claim expenses • Whether to pay tax on grants and scholarships so expenses can be used towards credits NTTC Webinar – Oct 2015

29. Interaction of Benefits • Which is better? • How do we help the taxpayer decide? • Try different scenarios in TaxWise and compare them, or • Use calculator to maximize refund NTTC Webinar – Oct 2015

30. Example: Clyde Clyde (age 27) lives with and supports his son Stevie (age 6). Clyde works and goes to college part-time. Wages: $20,000 Pell grant: 5,400 Tuition 4,100 Books 300 NTTC Webinar – Oct 2015

31. Example: Clyde • Scenario 1: Subtract expenses from the grant and pay tax on the remainder Grant $5,400 Less tuition - 4,100 Less books - 300 Taxable grant $1,000 NTTC Webinar – Oct 2015

32. Example: Clyde • Scenario 2: Up to $4,000 to AOTC Tuition $4,100 Books + 300 Total expenses 4,400 Less AOTC expenses - 4,000 Remaining expenses 400 Unrestricted grant 5,400 Less remaining expenses - 400 Taxable grant $5,000 NTTC Webinar – Oct 2015

33. Example: Clyde • Scenario 3 : Just $2,000 to AOTC Tuition $4,100 Books + 300 Total expenses 4,400 Less AOTC expenses - 2,000 Remaining expenses 2,400 Unrestricted grant 5,400 Less remaining expenses - 2,400 Taxable grant $3,000 NTTC Webinar – Oct 2015

34. Why try to eliminate filing requirement? • For non-dependent students who meet criteria on J-8 (under age 24) • Avoids “kiddie tax”— occurs if taxable scholarships + unearned income greater than $2,000 — and makes return OOS • For dependents • Avoids “kiddie tax” • Avoids adding student’s MAGI to parents’ MAGI for ACA issues NTTC Webinar – Oct 2015

35. Comparison Tools • Use Jeff Bogart’s optimizer at http://tools.cotaxaide.org/Education Calculator.html • If your taxpayer’s situation includes credits not covered by the optimizer, use the “Education Cookbook” and “Education Calculator” from OneSupport NTTC Webinar – Oct 2015

36. Pub 4012 Pages J-2 and J-3 It’s all here! NTTC Webinar – Oct 2015

37. Education Benefits Questions? Comments? NTTC Webinar – Oct 2015