Deducting Fees and Tuition: Why You Need Form 8917
The IRS Form 8971 allows you or your spouse to get a deduction on tuition fees of up to $4000. However, the deduction is only available through the 2017 tax year. This tuition and fee deduction on tuition fee does not apply to other related costs such as accommodation, food, transport, books, medical expenses, and insurance. Also, non-credited taxes are not eligible in this form.
In case you are struggling with a massive tax bill, tax deductions are a great way to reduce your tax bill. Once the deduction is made, it indirectly decreases your taxable income. However, to prevent double benefits, the IRS places certain restrictions on the tax deductions you can claim.
For example, you cannot file for deductions and tax credits using the same educational expenses. Also, if your filing status is married filing single, then you are not eligible for this deduction.
What is IRS Form 8917?
The cost of higher education is high, and without grants and scholarships, it is important to get all the refund available to you. IRS Form-8917 allows you to deduct some of your tuition. According to the form, you can get a refund of up to $4000 on tuition fee for the 2017 tax year. Before filing for a deduction, the institution will send you Form 1098-T where you will report your annual tuition and fees payments.
To use this form, you must meet specific requirements:
- You, your spouse or the dependent on your tax claim must be enrolled in an institution during the year that you are filing for. The qualified institution should be a higher learning institution, and the said student should have acquired a GED or a high school diploma before enrolling for the course.
- You or the student should have enrolled for one course at the qualified institution. Even if the student withdraws from the course, you can still use IRS form-8917 for tuition and fees deduction if the school does not give a refund.
- The deduction only applies if your adjusted gross income is less than $80,000 or $160,000 if you are married and filing your taxes jointly.
- You have to pay for part of the tuition or all of it. If grants and scholarships cover your entire tuition, then you do not qualify for the IRS tuition deduction.
- You can report the first three months of the year in which you file in or academic periods from the previous calendar year on Form 8917. The first three months means that if you pay for a course that does not start until the following year, you can still deduct the expenses as long as they are before the 1st of April.
- Claiming a federal tax credit on Form 8863 disqualifies you from filing for a deduction on Form-8917. You cannot claim a deduction on the same qualified education expense you have already used to get tax credits. However, applying for a state education tax credit does not disqualify you from claiming a tuition and fee deduction on Form-8917.
- The IRS has limitations on the amount that is claimable. For the 2017 tax year, the limit is $4,000 which means that if you pay tuition above this amount, the excess is not eligible for a deduction nor can it be used in the following year.
However, the IRS has restrictions on the people that can file for this deduction.
• Anyone whose filing status is married filing separately
• Anyone claimed as a dependent by a parent
• If your adjusted gross income is over $80,000 or $160,000 if you are filing jointly with a spouse.
• If you were a non-resident alien for the year in question and did not select the non-resident alien tax status
• If your educational expense is the same as that used to file educational tax credits.
Sometimes, the IRS may send you a letter or audit you because you did not supply the form 1098-T. This is a tuition document that confirms a student’s enrollment. The IRS may also be looking for extra information to verify the qualified expenses you report in form 8863. Review your details to ensure that your name and your social security number are correct for future reporting. In case you do not have the form, contact the school for a copy.
Form 8917 Instructions
- First, download the form from the IRS official website. Follow the written instruction to compute credit and transfer the numbers to IRS Form 1040 or 1040A.
- Explain if you or the student meets the requirements. To claim a tuition and fee deduction, the student should have paid the fees during the year for which you are filing a claim.
- Confirm if the institution is qualified for the deduction. The institution should be a college, university or vocational institution that is qualified for student aid programs and is under the Department of Education.
- Compute the qualified tuition and enrolment fees.
- Deduct the tax-free educational assistance and refunds from the educational expenses. The IRS does not want you to claim refunds for tax-free education assistance. Tax-free educational assistance is the part of a scholarship or grant, the portion of the employer-provided educational support, any veteran’s educational assistance, and any other educational assistance that can be subtracted from your gross income.
- Ensure that you fill in all your details well. Your name, your surname, social security number, etc.
- Fill up the form from columns A to C and include all the students you wish to make claims for. Add them up and write the result in line 2. Attach all necessary documents for the students.
- State your total income on line 3.
- On line 4, add up all the expenses that are not related to student loan interest or tuition. Combine the amount on line 23 up to 33 in 1040. Deduct the costs from the total income and write the results on line 6.
- Write down the total amount of the fees deduction on line 6. In this part, you should check if the deductions you are claiming amount to more than $65000, or $130,000 if you are filing jointly. If the answer is yes move to “Enter the smaller of line two or $2000” and if it is no” enter the smaller of line 2 or $4000.
What You Should Know about Pub 970
IRS Publication 970 is a document that provides information on the tax benefits available to students. It also explains the tax treatments for college funding such as grants, scholarships, and tuition reductions.
In this document, you will find the outline for two tax credits: American Opportunity Tax Credit and the Lifetime Learning Credit. Pub 970 breaks down the benefits that students can claim to reduce their income tax.
Some of the benefits include:
- The deductibility on the interest paid on student loan debt. This is a tax-free treatment for student loan debts that are already canceled.
- The deductibility of tuition and fees
- It also explains the ability to cash in on bonds without charges if the funds are directed towards paying for education.
- To back away from penalties on retirement plan withdrawals.
- Parents can claim their children till the age of 24 years.
- The deductibility of education expenses on business income.
- The government tax expenditures that are eligible for the tax credit: The American Opportunity Tax Credit and the Lifetime Learning Tax Credit.
Form 8917 or 8863
Both the forms mentioned above are about educational expenses. However, 8917 offers tuition and fees deduction while 8863 provides tax credits. Using the latter, you can file for tax credits which are the American Opportunity Tax Credit and the Lifetime Learning Credit.
It is important to know that tax deductions lower your taxable income and are therefore indirectly part of lowering your tax bill. Tax credits, on the other hand, reduce the value of your tax bill, dollar for dollar. If your tax credits are higher than your tax liability, then you get paid more. This is a perfect way to recover money from the government.
Usually, the IRS provides a simple tool to help you determine if you are eligible for education credits. Remember that none of these tax breaks are available to a married person filing separately. For maximized benefits, file taxes together with your spouse.
What Are Qualified Education Expenses?
- The American Opportunity Credit This allows you to claim student fees and student activity fees that are part of joining the school. You can also claim the supplies also required for certain classes.
- Lifetime Learning Credit Use this to claim the first three months’ student’s tuition and activity fees. Claim all the supplies required to enroll in a school.
IRS Education Tax Credits
- American Opportunity Credit This credit can save up to $2500. To qualify for the credit, you should apply for a degree program in a higher education institution. The institution should be eligible for the federal student aid program. If the amount of credit exceeds your tax bill, you can receive up to $1000 in refunds.
- Lifetime Learning Credit Lifetime credit is available to the entire population, as long as you attended a course during the year, in an institution that is eligible for the federal student aid program. The credit covers all the supplies and tuition fees required to enroll in the school. If you are attending a post-graduate program, then this credit is important to you. The maximum credit you can receive is a maximum of $2000, and unfortunately, it is not refundable if it exceeds your tax bill.
Tuition Reimbursement Forms
Tuition assistance programs are benefits for employees in which, an employer reimburses the employee for costs associated with deciding to continue education. Get the assistance by filing tuition reimbursement forms. Some companies encourage their employees to pursue courses and cover the tuition fees.
Each company is tasked with compiling a tuition reimbursement form, and the companies should have a system to submit the request and should be part of an employee’s benefits package.
Tax deductions are a great and legal way to reduce your tax burdens. In case you are having trouble filing your taxes, find a professional for advice and guidance. Also, take the initiative to understand and trail your taxes for increased benefits.