1. Understanding Student Taxes 1098-T 1099-MISC. 1098-E. Presented by Beatrice M. Sapp Student Financial Services Manager The Evergreen State College Olympia WA 1

2. Agenda  Educational Benefits  American Opportunity Tax Credit;  Lifetime Learning Tax Credit.  1098-T reporting  Qualified educational Expenses;  Non-qualified Education Expenses;  Scholarships, Grants;  Who gets a 1098-T.  1099-MISC. reporting  Qualified income;  Who gets the 1099-MISC.  1098-E 2

3. Tax credit or tax deduction  A tax credit reduces the amount of income tax you may have to pay  A deduction reduces the amount of income subject to tax 3

4. Tax Benefits http://www.irs.gov/pub/irs-pdf/p970.pdf http://www.irs.gov/pub/irs-pdf/p970.pdf  There are two tax credits available to help offset the costs of higher education by reducing the amount of income tax.  The American Opportunity Tax Credit: a) Applies to the first 4 years of post-secondary education; b) Up to $2,500 credit per eligible student (enrolled in a program, at least PT); c) Credit based on total cost of qualified tuition and related expenses; during the taxable year; d) Only available for 4 tax years; e) May be refundable.  Lifetime Learning Credit: a) Maximum credit $2,000 per return; b) Non-refundable; c) Available for al years of post-secondary, even for courses to improve job skills; d) Unlimited number of years. CREDIT! 4

5. 1098-T In order to claim the tax credits or deductions, schools are obligated to produce a 1098-T form! 5 DEDUCTION CREDIT

6. The 1098-T form is used to report to the IRS:  The amount of qualified expenses charged on the student accounts or the amount of payments received  The amount of grants and scholarships posted on the student accounts during the tax year The 1098-T does not report amount paid! Why? 6

7. Tax Benefits The 1098-T income tax form…….. 7

8. What are qualified educational expenses? Fees required for the enrollment or attendance at an eligible educational institution for courses of instruction. It includes Tuition, Mandatory Fees (building fee, capital improvement fee, technology fee), Class fees, Course related books, Equipment needed for a course of study….. Room and Board, Transportation, Insurance, Medical Expenses, Athletic fees, health fee, personal, living, or family expenses ARE NOT! 8

9. What are scholarships and grants? All payments received from 3 rd party (excluding from family or loans), from the government, private entities, such as religious organizations, etc….. All payments going toward qualified education expenses 9

10. So many boxes for such a short form! Box 1 or Box 2 10 Box 1 = Payments received for qualified tuition and related expenses Box 2 = Net amount billed for qualified tuition and related expenses Note: Box 3: Schools either chose Box 1 or box 2 to report. Once they make the choice, they will need to submit a written request to the IRS if they want to change the method of reporting.

11. Adjustments made for a prior year If there is a change in enrollment information that creates a change in billed tuition after the previous year’ s 1098-T was generated, the amount will be recorded in that box. 11 Box 4

12. Boxes 5 and 6  Has do with scholarships and grants awarded during the tax year  Box 5 = Amount received from scholarships, grants, third party (except from family, loans, and AmeriCorps)  Box 6 = If there is a change in scholarship information that creates a change in scholarships/grants received after the previous year’s 1098-T was generated. 12

13. What is the amount of the allowable deduction? Box 5 – Box 2 = Qualified amount to deduct from income Taking into consideration past adjustments ( Box 5 – Box 6) - (Box 2 – Box 4) = Qualified amount to deduct from income 13

14. The other boxes! Box 7 Future quarter charges or payments included in box 1 or box 2? Box 8 Part-time status Box 9 Graduate level 14

15. At the Evergreen State College  We are a BANNER school;  We use CASHNET for our payment site;  We use Banner processes to create the 1098-T, print and post an electronic form on the student web account;  We do not use a third-party;  We have 4 quarters: Fall, Winter, Spring and Summer. 15

16. PROCESSES for Tax year 2015 01/01/15 to 12/31/2015 First, need to establish the quarters to report: Winter 2015 (Jan-March) ------Was last year “Future quarter” Spring 2015 (April- June) Summer 2015 (June- August) Fall 2015 (September- December) Winter 2016 (January – March 2016) ---- “Future quarter” First problem for the students and parents! CONFUSION issue!!!!!! Second, enter the Tax rules for the 4 boxes (2,4,5,6) Box 2 and box 5 = include categories: TUI, FAV, CRS, and detail codes CABF, CABW, CLNG Box 4 and 6 = include categories FA (financial aid awards except loans) and exclude FAMC (AmeriCorps) Second issue for the students and parents! How to treat military benefits? Effective 2010 military/VA benefits were NOT included in scholarships and grants. However, started since 2014, they are now included. (Thus reducing the amount of qualified expenses that can be claimed.) 16

17. Who does not get a 1098-T ? The school does not have to produce a 1098-T for: - Non-resident alien unless the students request one; - Students whose total qualified expenses are less than the Total scholarships/grants received; - Students who are not enrolled in credit earning courses; - Students who are covered by formal billing arrangement. What does the school do with all those 1098-T? By the 31 st day of January of the following year, the school has to mail (or make available on line) 1098-T to the students. By March 31 st of the same year, the school uploads a file of all 1098-T produced and sends the encrypted file to the IRS. The data on the file ? Social security number, amounts of Box 2,4,5,6, flags for PT, and graduate level. The school does NOT send a copy of the 1098-T forms to the IRS nor do the students have to include a copy of the 1098-T form with their tax return. 17

18. What questions do the school have to answer starting February 1?  “You made a mistake, you forgot to put an amount in Box 1!”  “You forgot to include the tuition and fees for the winter quarter !  “ Why is Box 2 blank, but box 5 has an amount? “  “I did not get a 1098-T”  “The amounts are wrong! Correct them and send me a revised 1098-T”. 18

19. Important Fact! The 1098-T forms produced by the schools are only informational 19

20. Biggest challenge for the schools Have students’ social security numbers on file! 20

21. Missing or incorrect social security numbers on the IRS file  In 2011, the IRS sent letters to all schools who submitted the 1098-T file with missing social security numbers. Schools were charged $100 per missing social security numbers;  In 2012, the IRS again sent out letters and the amount to pay in penalties  In 2013, the IRS issued two advisory reports responding to penalty notices for missing or incorrect taxpayer information and recommendations for completing form 1098-T;  In may 2015, and for tax years 2012, 2013, 2014 the IRS waived penalties assessed against schools as long as the schools complied with the IRS regulations that clearly spells out institutional responsibilities for collecting students social security numbers. (W-9) 21

22. 1099-MISC. (miscellaneous income)  Prizes, Awards;  Stipends, Internships;  Some scholarships: the student actually perform services to receive the scholarship;  Any services performed by the students as a non school employee (for example: guest lecture at a class);  At least $600 (for the year). 22

23. 1098-E Student Loan interest statement  This IRS form will be sent to the students from their different loan servicers if the total interest paid is more than $600.00.  The form will report all interest charged on subsidized, unsubsidized, guaranteed, or otherwise treated as a student loan under a program of the federal, state, or local government.  The school has nothing to do with that form. 23

24. Any questions? sappb@evergreen.edu 24