Does a 1098-T Tuition Statement Help Increase Your Tax Refund?

Colleges across the country have already started sending out IRS Form 1098-T tuition statements to students. If you attend an eligible institution, you’ll want to make sure you have this form when it comes time to do your taxes. Does a 1098-T increase your refund?

The 1098-T form is important for filing your taxes because it could help you increase your tax refund.

The 1098-T form shows the amount you paid for qualified educational expenses during a tax year. The forms are only issued by eligible institutions like colleges, universities, and vocational schools, that participate in federal student aid programs. The eligible institutions send the forms to students and the IRS.

The information on the 1098-T form can qualify students to receive education-related tax benefits like tax credits or deductions. Tax credits help reduce the amount of taxes you owe and don’t necessarily help increase your tax refund. On the other hand, deductions help reduce your reported AGI (adjusted gross income) and lower your taxable income, which helps lower the amount of taxes you owe and could increase your tax refund.

Not all education-related expenses are considered qualified expenses that you should include on a 1098-T form. Housing, transportation, and personal expenses shouldn’t be included on the form. However, tuition, fees, and some course materials do qualify.

Based on your qualified expenses, you might be eligible for one of two different education credits—the American Opportunity Tax Credit or the Lifetime Learning Credit.

The American Opportunity Tax Credit is available for undergraduates in their first four years of college. Eligible students must be enrolled at least half-time during one academic period within the tax year. Although the credit is limited to students over age 24, parents of students under that age can apply for the credit on their tax return.

The credit can save up to $2,500 in taxes on educational expenses and it's partially refundable. So, if your credit is more than the amount of taxes you owe, you could get a check for up to $1,000 from the IRS.

The Lifetime Learning Credit is available to anyone who has taken at least one class at an eligible institution. The student doesn’t need to be enrolled in a degree program or take a certain number of courses to qualify. Tuition, fees, books, and supplies are all covered under this credit, which has a maximum benefit of $2,000. Since the credit isn't refundable, it won’t increase your tax refund.

Form 1098-T also allows you to deduct up to $4,000 for qualified higher education expenses. As with any tax deduction, that can lower your AGI and potentially increase your tax refund.

It’s important to remember that you can only claim one educational tax benefit per student in a tax year. You also can’t claim both a tuition deduction and a tax credit for the same student in the same tax year—it has to be one or the other.