Understanding whether to report a 1098-T form on your taxes is critical for students and their families. This tax document affects how education expenses are managed during tax season and influences eligibility for credits or deductions. Accurate handling of 1098-T information ensures compliance with IRS regulations and maximizes financial benefits.
Reporting Criteria for Tuition Statements
The 1098-T form, or Tuition Statement, is issued by educational institutions to students who have paid qualified tuition and related expenses. It determines eligibility for education-related tax benefits. Institutions must provide this form to students who made payments for qualified expenses during the tax year, including payments by third parties like parents or guardians.
Key information on the form includes Box 1, which reports total payments received for qualified tuition and related expenses; Box 5 reports total scholarships or grants administered and processed by the institution. 1Internal Revenue Service. Instructions for Forms 1098-E and 1098-T (2025)
Educational institutions must send the 1098-T form to students by January 31 of the following year. 2Internal Revenue Service. General Instructions for Certain Information Returns (2025)
Students should verify the form’s accuracy against their records and resolve discrepancies with the institution promptly to prevent tax filing issues.
Effects of Scholarships and Grants
Scholarships and grants reduce the cost of education but may affect tax obligations, depending on how they are applied. These funds are generally tax-free if used for qualified expenses like tuition, required fees, and course materials, and taxable if used for nonqualified expenses such as room and board. 3Internal Revenue Service. Publication 970, Tax Benefits for Education (2024)
Box 5 of the 1098-T reflects the total scholarships and grants received. If this amount exceeds Box 1, which reports payments for qualified expenses, the excess is potentially taxable. Accurate record-keeping and strategic allocation of funds are essential to minimize taxable income and maximize financial benefits.
Education Credits and Deductions
Education credits and deductions provide opportunities to ease financial burdens. The American Opportunity Credit allows up to $2,500 per eligible student and phases out as income rises; for 2025, the credit phases out between $80,000 and $90,000 of MAGI for single filers ($160,000–$180,000 for joint filers), and you can’t claim it at or above the upper threshold. 4Internal Revenue Service. American Opportunity Tax Credit
The Lifetime Learning Credit offers up to $2,000 per tax return for a broad range of educational pursuits. 5Internal Revenue Service. Lifetime Learning Credit
Deductions, such as the Student Loan Interest Deduction, also reduce tax burdens. For the 2025 tax year, the $2,500 student loan interest deduction phases out between $85,000 and $100,000 of MAGI for single filers ($170,000–$200,000 for joint filers). 6Internal Revenue Service. Internal Revenue Bulletin 2024-45 (Inflation Adjustments for 2025)
Consequences of Non-Filing or Errors
Failing to file or misreporting the 1098-T form can lead to penalties and missed tax savings. For 1098-T filings by institutions, IRS information-return penalties for statements due in 2025 are $60 per form if corrected within 30 days, $130 if corrected by August 1, and $330 if furnished after August 1 or not furnished; higher amounts apply for intentional disregard, and annual caps vary by filer size. 7Internal Revenue Service. Information Return Penalties
Errors in reporting can result in the denial of education credits like the American Opportunity Credit or Lifetime Learning Credit. Misreported amounts may trigger IRS audits, leading to additional scrutiny and potential financial consequences. Keeping detailed records of payments and ensuring alignment with institutional reports is essential to avoid these issues.