How to Read and Use IRS Form 1098-T When Filing Your Taxes

If you're a student or paying for someone's education, you're probably staring at this form wondering if it's written in some secret IRS code that only tax professionals understand. Is Box 1 the only important part? Why is Box 2 empty this year? And why does Box 5 sometimes exceed the amount in Box 1?

Even when you think you understand the basics, this  simple form creates layers of confusion that leave most of us second-guessing our tax returns. That's why we've created this straightforward guide to help you decode Form 1098-T and use it correctly to claim valuable education tax benefits.

What Is IRS Form 1098-T and Who Gets It?

Form 1098-T (Tuition Statement) is a tax document that eligible educational institutions must provide to students who paid "qualified educational expenses" during the tax year.

The 1098-T gives you that documentation needed for claiming education tax benefits. Your college or university reports what you paid for qualified tuition and related expenses, while you use this information to claim valuable tax credits like the American Opportunity Credit or the Lifetime Learning Credit. This form helps you verify exactly what the IRS will see regarding your educational expenses. For many students and parents, this form alone makes the difference between missing out on or claiming thousands in tax credits.

As a student and parent, you must correctly interpret what each box on the form mean. The form doesn't always show the total amount you can claim, and sometimes the numbers require adjustments before using them on your tax return.

Form 1098-T is useful for  undergraduate and graduate students taking qualified courses at eligible educational institutions. But beware if you're taking non-credit courses or attending non-accredited schools, as these typically don't generate a 1098-T!

Breaking Down the Boxes on Form 1098-T

The 1098-T contains several key boxes that matter for your taxes:

• Box 1: Shows the total payments received for qualified tuition and related expenses
• Box 2: Shows amounts billed for qualified tuition (most schools now use Box 1 instead)
• Box 4: Adjustments to tuition reported in a prior year
• Box 5: Scholarships or grants the student received
• Box 6: Adjustments to scholarships or grants from a prior year
• Box 7: Indicates whether the amount in Box 1 includes payments for an academic period beginning January-March of the following year
• Box 8: Shows whether you're at least a half-time student
• Box 9: Indicates if you're a graduate student

For example, if you're a full-time undergraduate student:

• Box 1 might show $12,000 (what you paid for tuition and fees)
• Box 5 might show $4,000 (scholarships you received)
• Box 8 would be checked (indicating at least half-time attendance)
• Box 9 would be empty (since you're not a graduate student)
• That meant your net qualified education expenses for tax credit purposes would be $8,000 ($12,000 - $4,000)!

Remember, they're specific amounts that determine how much you can claim for education tax benefits on your return.

How to Use Form 1098-T to Claim Education Tax Credits

To ensure that you aren;t missing out on any information, it's important to understand how the form works. 

 For example, your 1098-T shows $7,000 in Box 1 and $2,000 in Box 5. That means you paid $5,000 in qualified expenses after scholarships. With the American Opportunity Credit, you could receive a credit of $2,500 (100% of the first $2,000 plus 25% of the next $2,000). That's $2,500 directly reducing your tax bill, potentially putting a much larger refund in your pocket! 

Keep this in mind when you're filing your return and looking for legitimate ways to reduce your tax burden. A good rule of thumb is that tuition, required fees, and course materials required for enrollment count, but room and board, transportation, and personal expenses don't.

To claim education credits using your 1098-T:

1. Calculate your qualified expenses (generally Box 1 minus Box 5)
2. Determine which credit you're eligible for (American Opportunity or Lifetime Learning)
3. Complete Form 8863 to claim your education credits
4. Attach Form 8863 to your tax return

We advise you to consult with a tax professional to make the process simple and  surprisingly straightforward. Just make sure you understand which expenses qualify, keep your receipts for books and materials not included on the 1098-T, and don't try to claim both credits for the same student in the same year.

Common Mistakes to Avoid When Using Form 1098-T

Understanding what mistakes to avoid doesn't have to feel like you're taking an advanced accounting exam. Every tax season, these common 1098-T errors cause problems:

• Claiming expenses not actually paid in the tax year – The form shows what the school received, not necessarily what you paid out of pocket
• Double-counting expenses covered by tax-free scholarships – Expenses paid with tax-free grants can't be used for education credits
• Ignoring expenses not shown on the form – Required books and supplies purchased outside the bookstore might not appear on your 1098-T but could still qualify
• Using Box 2 amounts when Box 1 is filled in – Most schools have switched to the "payments received" method (Box 1)

When you use use 1098-T correctly:

• You identify which expenses qualify for tax benefits
• You subtract tax-free scholarships and grants
• You determine which education credit provides the best benefit
• You complete Form 8863 accurately

When form 1098-T is considered incorrect:  

• Claiming room and board as qualified expenses
• Using the same expenses for multiple tax benefits
• Ignoring the limitations based on your modified adjusted gross income
• Claiming expenses paid in different calendar years

What If Your 1098-T Is Incorrect or Missing?

Before filing your return, check these crucial issues:

• Missing 1098-T – Contact your school's financial office immediately
• Incorrect amounts – Compare against your personal payment records
• Empty boxes – Not all boxes need to be filled in, depending on your situation
• No 1098-T but you paid qualified expenses – You might still claim credits with proper documentation

The key thing to understand? The 1098-T is informational and you're ultimately responsible for claiming the correct amounts based on what you actually paid. There's no "perfect form" requirement despite what some internet "experts" might claim.

Pro tip: Access your 1098-T through your school's online student portal if it's available, it often appears there before the paper copy arrives in the mail. 

Conclusion

 Form 1098-T  serves an important purpose in helping you claim valuable education tax benefits that could save you thousands of dollars. It documents what you paid for qualified education expenses and what scholarships you received. Box 1 minus Box 5 gives you a starting point for calculating your eligible expenses. And education credits like the American Opportunity Credit and Lifetime Learning Credit can significantly reduce your tax bill when claimed correctly.

Have questions about how to use your specific 1098-T to maximize your education tax benefits? NSKT Global specializes in helping students and parents optimize their tax situation through strategic education credit planning. Our tax professionals understand the nuances of education tax benefits and can ensure you're saving maximum on your taxes. 

FAQs About IRS Form 1098-T

What does each box on the 1098-T mean?

Box 1 shows payments received for qualified tuition and related expenses, while Box 5 shows scholarships or grants. Box 4 and Box 6 show adjustments from prior years, Box 7 indicates whether amounts include future periods, and Boxes 8 and 9 show your enrollment status. The most important calculation for tax credits is typically Box 1 minus Box 5.

Can I claim a credit if Box 5 is more than Box 1?

No! When your scholarships and grants (Box 5) exceed your qualified tuition and fees (Box 1), you generally cannot claim education credits since you have no out-of-pocket qualified expenses. In fact, you might need to report some scholarship amounts as taxable income if they exceed qualified expenses.

Where do I enter 1098-T on my tax return?

You don't directly enter the 1098-T on your tax return. Instead, you use the information to complete Form 8863 (Education Credits) which then attaches to your Form 1040. Most tax software will automatically add this form when you indicate you have education expenses.

Is Form 1098-T required to claim education credits?

While technically not absolutely required, the 1098-T provides crucial verification of your qualified expenses. Without it, you'll need substantial documentation to prove your expenses if the IRS questions your claim. The form creates a match between what you report and what the IRS already knows.

Can parents use their child's 1098-T to claim credits?

Definitely, if the student is your dependent! When you claim your child as a dependent on your tax return, you're entitled to claim their education credits based on their 1098-T, even if they paid the expenses themselves. However, if the student isn't your dependent, only they can claim the credits regardless of who paid.