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It’s tax time again and we are all looking for every possible deduction (credit) to lower our overall tax bill.

One deduction that can add up, and is often overlooked, is the education credit. This credit can be claimed using the 1098-T tax form which records all qualified educational expenses as well as scholarships and grants received in 2012.

According to the IRS 1089-T tax form rules:

[box] An eligible educational institution, such as a college or university in which you are enrolled, and an insurer who makes reimbursements or refunds of qualified tuition and related expenses to you must furnish this statement to you. You, or the person who can claim you as a dependent, may be able to claim an education credit on Form 1040 or 1040A, only for the qualified tuition and related expenses that were actually paid in 2012. To see if you qualify for the credit, see Pub. 970, Tax Benefits for Education; Form 8863, Education Credits; and the Form 1040 or 1040A instructions.[/box]

Payments Received vs. Amounts Billed

When you receive your 1098-T it is important to note which box the qualified educational expenses are listed in. Colleges and universities have the option of either reporting these expenses in the year that the payments were actually received, or when the students were billed for these expenses.

Box 1= Payments received in calendar year

Box 2= Amounts billed in calendar year. 

Here is an example: Your daughter Suzie attended university in the year 2011. Her 2011 1098-T included eligible college expenses for Summer 2011, Fall 2011 and Spring 2012. You are understandably puzzled by this.

Your college has chosen to use Box 2, and report the educational expenses based on when they were billed. Suzie pre-registered for the Spring 2012 semester when registration opened up in November 2011. Therefore using this option, her expenses for Spring 2012 are actually included on her 2011 1098-T.

Colleges have the option to choose which method of reporting they use, so it is very important to note which box number your eligible college expenses appears in.

Once you have determined which option your college has chosen to report with, you can then accurately assess the qualified expenses to the correct 1040 form, and claim your education credit!

**Disclaimer: I am not a tax professional. I work in higher education, but I am not qualified to tell you exactly how to file your taxes. It’s always highly recommended to seek an actual tax professional. Just sayin…**