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Tax Act 2012 Login

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Tax Act 2012 Login

Tax act 2012 login 35. Tax act 2012 login   Education Credits Table of Contents Introduction Useful Items - You may want to see: Who Can Claim an Education Credit Qualified Education ExpensesNo Double Benefit Allowed Adjustments to Qualified Education Expenses Introduction For 2013, there are two tax credits available to persons who pay expenses for higher (postsecondary) education. Tax act 2012 login They are: The American opportunity credit, and The lifetime learning credit. Tax act 2012 login The chapter will present an overview of these education credits. Tax act 2012 login To get the detailed information you will need to claim either of the credits, and for examples illustrating that information, see chapters 2 and 3 of Publication 970. Tax act 2012 login Can you claim more than one education credit this year?   For each student, you can choose for any year only one of the credits. Tax act 2012 login For example, if you choose to take the American opportunity credit for a child on your 2013 tax return, you cannot, for that same child, also claim the lifetime learning credit for 2013. Tax act 2012 login   If you are eligible to claim the American opportunity credit and you are also eligible to claim the lifetime learning credit for the same student in the same year, you can choose to claim either credit, but not both. Tax act 2012 login   If you pay qualified education expenses for more than one student in the same year, you can choose to take the American opportunity and the lifetime learning credits on a per-student, per-year basis. Tax act 2012 login This means that, for example, you can claim the American opportunity credit for one student and the lifetime learning credit for another student in the same year. Tax act 2012 login Table 35-1. Tax act 2012 login Comparison of Education Credits Caution. Tax act 2012 login You can claim both the American opportunity credit and the lifetime learning credit on the same return—but not for the same student. Tax act 2012 login   American Opportunity Credit Lifetime Learning Credit Maximum credit Up to $2,500 credit per eligible student Up to $2,000 credit per return Limit on modified adjusted gross income (MAGI) $180,000 if married filing jointly;  $90,000 if single, head of household, or qualifying widow(er) $127,000 if married filing jointly;  $63,000 if single, head of household, or qualifying widow(er) Refundable or nonrefundable 40% of credit may be refundable Credit limited to the amount of tax you must pay on your taxable income Number of years of postsecondary education Available ONLY if the student had not completed the first 4 years of postsecondary education before 2013 Available for all years of postsecondary education and for courses to acquire or improve job skills Number of tax years credit available Available ONLY for 4 tax years per eligible student (including any year(s) the Hope credit was claimed) Available for an unlimited number of years Type of program required Student must be pursuing a program leading to a degree or other recognized education credential Student does not need to be pursuing a program leading to a degree or other recognized education credential Number of courses Student must be enrolled at least half time for at least one academic period beginning during the tax year Available for one or more courses Felony drug conviction At the end of 2013, the student had not been convicted of a felony for possessing or distributing a controlled substance Felony drug convictions do not make the student ineligible Qualified expenses Tuition, required enrollment fees, and course materials that the student needs for a course of study whether or not the materials are bought at the educational institution as a condition of enrollment or attendance Tuition and fees required for enrollment or attendance (including amounts required to be paid to the institution for course-related books, supplies, and equipment) Payments for academic periods Payments made in 2013 for academic periods beginning in 2013 or beginning in the first 3 months of 2014 Differences between the American opportunity and lifetime learning credits. Tax act 2012 login   There are several differences between these two credits. Tax act 2012 login These differences are summarized in Table 35-1, later. Tax act 2012 login Useful Items - You may want to see: Publication 970 Tax Benefits for Education Form (and Instructions) 8863 Education Credits (American Opportunity and Lifetime Learning Credits) Who Can Claim an Education Credit You may be able to claim an education credit if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible educational institution. Tax act 2012 login The credits are based on the amount of qualified education expenses paid for the student in 2013 for academic periods beginning in 2013 and in the first 3 months of 2014. Tax act 2012 login For example, if you paid $1,500 in December 2013 for qualified tuition for the spring 2014 semester beginning in January 2014, you may be able to use that $1,500 in figuring your 2013 education credit(s). Tax act 2012 login Academic period. Tax act 2012 login   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Tax act 2012 login In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Tax act 2012 login Eligible educational institution. Tax act 2012 login   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Tax act 2012 login S. Tax act 2012 login Department of Education. Tax act 2012 login It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Tax act 2012 login The educational institution should be able to tell you if it is an eligible educational institution. Tax act 2012 login   Certain educational institutions located outside the United States also participate in the U. Tax act 2012 login S. Tax act 2012 login Department of Education's Federal Student Aid (FSA) programs. Tax act 2012 login Who can claim a dependent's expenses. Tax act 2012 login   If an exemption is allowed as a deduction for any person who claims the student as a dependent, all qualified education expenses of the student are treated as having been paid by that person. Tax act 2012 login Therefore, only that person can claim an education credit for the student. Tax act 2012 login If a student is not claimed as a dependent on another person's tax return, only the student can claim a credit. Tax act 2012 login Expenses paid by a third party. Tax act 2012 login   Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Tax act 2012 login However, qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Tax act 2012 login Therefore, you are treated as having paid expenses that were paid by the third party. Tax act 2012 login For more information and an example see Who Can Claim a Dependent's Expenses in Pub. Tax act 2012 login 970, chapter 2 or 3. Tax act 2012 login Who cannot claim a credit. Tax act 2012 login   You cannot take an education credit if any of the following apply. Tax act 2012 login You are claimed as a dependent on another person's tax return, such as your parent's return. Tax act 2012 login Your filing status is married filing separately. Tax act 2012 login You (or your spouse) were a nonresident alien for any part of 2013 and did not elect to be treated as a resident alien for tax purposes. Tax act 2012 login Your MAGI is one of the following. Tax act 2012 login American opportunity credit: $180,000 or more if married filing jointly, or $90,000 or more if single, head of household, or qualifying widow(er). Tax act 2012 login Lifetime learning credit: $127,000 or more if married filing jointly, or $63,000 or more if single, head of household, or qualifying widow(er) . Tax act 2012 login   Generally, your MAGI is the amount on your Form 1040, line 38, or Form 1040A, line 22. Tax act 2012 login However, if you are filing Form 2555, Form 2555–EZ, or Form 4563, or are excluding income from Puerto RIco, add to the amount on your Form 1040, line 38, or Form 1040A, line 22, the amount of income you excluded. Tax act 2012 login For details, see Pub. Tax act 2012 login 970. Tax act 2012 login    Figure 35-A may be helpful in determining if you can claim an education credit on your tax return. Tax act 2012 login The American opportunity credit will always be greater than or equal to the lifetime learning credit for any student who is eligible for both credits. Tax act 2012 login However, if any of the conditions for the American opportunity credit, listed in Table 35-1 earlier, are not met for any student, you cannot take the American opportunity credit for that student. Tax act 2012 login You may be able to take the lifetime learning credit for part or all of that student's qualified education expenses instead. Tax act 2012 login See Pub. Tax act 2012 login 970 for information on other education benefits. Tax act 2012 login Qualified Education Expenses Generally, qualified education expenses are amounts paid in 2013 for tuition and fees required for the student's enrollment or attendance at an eligible educational institution. Tax act 2012 login It does not matter whether the expenses were paid in cash, by check, by credit or debit card, or with borrowed funds. Tax act 2012 login For course-related books, supplies, and equipment, only certain expenses qualify. Tax act 2012 login American opportunity credit: Qualified education expenses include amounts spent on books, supplies, and equipment needed for a course of study, whether or not the materials are purchased from the educational institution as a condition of enrollment or attendance. Tax act 2012 login Lifetime learning credit: Qualified education expenses include amounts for books, supplies, and equipment only if required to be paid to the institution as a condition of enrollment or attendance. Tax act 2012 login Qualified education expenses include nonacademic fees, such as student activity fees, athletic fees, or other expenses unrelated to the academic course of instruction, only if the fee must be paid to the institution as a condition of enrollment or attendance. Tax act 2012 login However, fees for personal expenses (described below) are never qualified education expenses. Tax act 2012 login Qualified education expenses for either credit do not include amounts paid for: Personal expenses. Tax act 2012 login This means room and board, insurance, medical expenses (including student health fees), transportation, and other similar personal, living, or family expenses. Tax act 2012 login Any course or other education involving sports, games, or hobbies, or any noncredit course, unless such course or other education is part of the student's degree program or (for the lifetime learning credit only) helps the student acquire or improve job skills. Tax act 2012 login You should receive Form 1098–T, Tuition Statement, from the institution reporting either payments received in 2013 (box 1) or amounts billed in 2013 (box 2). Tax act 2012 login However, the amount in box 1 or 2 of Form 1098–T may be different from the amount you paid (or are treated as having paid). Tax act 2012 login In completing Form 8863, use only the amounts you actually paid (plus any amounts you are treated as having paid) in 2013, reduced as necessary, as described in Adjustments to Qualified Education Expenses , later. Tax act 2012 login Qualified education expenses paid on behalf of the student by someone other than the student (such as a relative) are treated as paid by the student. Tax act 2012 login Qualified education expenses paid (or treated as paid) by a student who is claimed as a dependent on your tax return are treated as paid by you. Tax act 2012 login If you or the student takes a deduction for higher education expenses, such as on Schedule A or C (Form 1040), you cannot use those expenses in your qualified education expenses when figuring your education credits. Tax act 2012 login Qualified education expenses for any academic period must be reduced by any tax-free educational assistance allocable to that academic period. Tax act 2012 login See Adjustments to Qualified Education Expenses, later. Tax act 2012 login Prepaid Expenses. Tax act 2012 login   Qualified education expenses paid in 2013 for an academic period that begins in the first 3 months of 2014 can be used in figuring an education credit for 2013 only. Tax act 2012 login See Academic period , earlier. Tax act 2012 login For example, if you pay $2,000 in December 2013 for qualified tuition for the 2014 winter quarter that begins in January 2014, you can use that $2,000 in figuring an education credit for 2013 only (if you meet all the other requirements). Tax act 2012 login    You cannot use any amount you paid in 2012 or 2014 to figure the qualified education expenses you use to figure your 2013 education credit(s). Tax act 2012 login Paid with borrowed funds. Tax act 2012 login   You can claim an education credit for qualified education expenses paid with the proceeds of a loan. Tax act 2012 login Use the expenses to figure the credit for the year in which the expenses are paid, not the year in which the loan is repaid. Tax act 2012 login Treat loan payments sent directly to the educational institution as paid on the date the institution credits the student's account. Tax act 2012 login Student withdraws from class(es). Tax act 2012 login   You can claim an education credit for qualified education expenses not refunded when a student withdraws. Tax act 2012 login No Double Benefit Allowed You cannot do any of the following. Tax act 2012 login Deduct higher education expenses on your income tax return (as, for example, a business expense) and also claim an education credit based on those same expenses. Tax act 2012 login Claim more than one education credit based on the same qualified education expenses. Tax act 2012 login Claim an education credit based on the same expenses used to figure the tax-free portion of a distribution from a Coverdell education savings account (ESA) or qualified tuition program (QTP). Tax act 2012 login Claim an education credit based on qualified education expenses paid with educational assistance, such as a tax-free scholarship, grant, or employer-provided educational assistance. Tax act 2012 login See Adjustments to Qualified Education Expenses, next. Tax act 2012 login Adjustments to Qualified Education Expenses For each student, reduce the qualified education expenses paid in 2013 by or on behalf of that student under the following rules. Tax act 2012 login The result is the amount of adjusted qualified education expenses for each student. Tax act 2012 login Tax-free educational assistance. Tax act 2012 login   For tax-free educational assistance received in 2013, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. Tax act 2012 login See Academic period , earlier. Tax act 2012 login      Tax-free educational assistance includes:    Tax-free parts of scholarships and fellowships (see chapter 12 of this publication and chapter 1 of Pub. Tax act 2012 login 970), The tax-free part of Pell grants (see chapter 1 of Pub. Tax act 2012 login 970), The tax-free part of employer-provided educational assistance (see Pub. Tax act 2012 login 970), Veterans' educational assistance (see chapter 1 of Pub. Tax act 2012 login 970), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Tax act 2012 login Generally, any scholarship or fellowship is treated as tax-free educational assistance. Tax act 2012 login However, a scholarship or fellowship is not treated as tax-free educational assistance to the extent the student includes it in gross income (if the student is required to file a tax return) for the year the scholarship or fellowship is received and either: The scholarship or fellowship (or any part of it) must be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Tax act 2012 login 970, chapter 1; or The scholarship or fellowship (or any part of it) may be applied (by its terms) to expenses (such as room and board) other than qualified education expenses as defined in Qualified education expenses in Pub. Tax act 2012 login 970, chapter 1. Tax act 2012 login You may be able to increase the combined value of an education credit and certain educational assistance if the student includes some or all of the educational assistance in income in the year received. Tax act 2012 login For details, see Adjustments of Qualified Education Expenses, in chapters 2 and 3 of Pub. Tax act 2012 login 970. Tax act 2012 login Some tax-free educational assistance received after 2013 may be treated as a refund of qualified education expenses paid in 2013. Tax act 2012 login This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2013 for qualified education expenses paid on behalf of a student in 2013 (or attributable to enrollment at an eligible educational institution during 2013). Tax act 2012 login If this tax-free educational assistance is received after 2013 but before you file your 2013 income tax return, see Refunds received after 2013 but before your income tax return is filed, later. Tax act 2012 login If this tax-free educational assistance is received after 2013 and after you file your 2013 income tax return, see Refunds received after 2013 and after your income tax return is filed, later. Tax act 2012 login Refunds. Tax act 2012 login   A refund of qualified education expenses may reduce qualified education expenses for the tax year or may require you to repay (recapture) the credit that you claimed in an earlier year. Tax act 2012 login Some tax-free educational assistance received after 2013 may be treated as a refund. Tax act 2012 login See Tax-free educational assistance, earlier. Tax act 2012 login Refunds received in 2013. Tax act 2012 login   For each student, figure the adjusted qualified education expenses for 2013 by adding all the qualified education expenses paid in 2013 and subtracting any refunds of those expenses received from the eligible educational institution during 2013. Tax act 2012 login Refunds received after 2013 but before your income tax return is filed. Tax act 2012 login   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received before you file your 2013 income tax return, reduce the amount of qualified education expenses for 2013 by the amount of the refund. Tax act 2012 login Refunds received after 2013 and after your income tax return is filed. Tax act 2012 login   If anyone receives a refund after 2013 of qualified education expenses paid on behalf of a student in 2013 and the refund is received after you file your 2013 income tax return, you may need to repay some or all of the credit that you claimed. Tax act 2012 login See Credit recapture, next. Tax act 2012 login Credit recapture. Tax act 2012 login    If any tax-free educational assistance for the qualified education expenses paid in 2013, or any refund of your qualified education expenses paid in 2013, is received after you file your 2013 income tax return, you must recapture (repay) any excess credit. Tax act 2012 login You do this by refiguring the amount of your adjusted qualified education expenses for 2013 by reducing the expenses by the amount of the refund or tax-free educational assistance. Tax act 2012 login You then refigure your education credit(s) for 2013 and figure the amount by which your 2013 tax liability would have increased if you had claimed the refigured credit(s). Tax act 2012 login Include that amount as an additional tax for the year the refund or tax-free assistance was received. Tax act 2012 login Example. Tax act 2012 login    You paid $8,000 tuition and fees in December 2013 for your child's Spring semester beginning in January 2014. Tax act 2012 login You filed your 2013 tax return on February 3, 2014, and claimed a lifetime learning credit of $1,600 ($8,000 qualified education expense paid x . Tax act 2012 login 20). Tax act 2012 login You claimed no other tax credits. Tax act 2012 login After you filed your return, your child withdrew from two courses and you received a refund of $1,400. Tax act 2012 login You must refigure your 2013 lifetime learning credit using $6,600 ($8,000 qualified education expenses − $1,400 refund). Tax act 2012 login The refigured credit is $1,320 and your tax liability increased by $280. Tax act 2012 login You must include the difference of $280 ($1,600 credit originally claimed − $1,320 refigured credit) as additional tax on your 2014 income tax return. Tax act 2012 login See the instructions for your 2014 income tax return to determine where to include this tax. Tax act 2012 login If you also pay qualified education expenses in 2014 for an academic period that begins in the first 3 months of 2014 and you receive tax-free educational assistance, or a refund, as described above, you may choose to reduce your qualified education expenses for 2014 instead of reducing your expenses for 2013. Tax act 2012 login Amounts that do not reduce qualified education expenses. Tax act 2012 login   Do not reduce qualified education expenses by amounts paid with funds the student receives as: Payment for services, such as wages, A loan, A gift, An inheritance, or A withdrawal from the student's personal savings. Tax act 2012 login   Do not reduce the qualified education expenses by any scholarship or fellowship reported as income on the student's tax return in the following situations. Tax act 2012 login The use of the money is restricted, by the terms of the scholarship or fellowship, to costs of attendance (such as room and board) other than qualified education expenses, as defined in Chapter 1 of Pub. Tax act 2012 login 970. Tax act 2012 login The use of the money is not restricted. Tax act 2012 login   For examples, see chapter 2 in Pub. Tax act 2012 login 970. Tax act 2012 login Figure 35-A. Tax act 2012 login Can You Claim an Education Credit for 2013? This image is too large to be displayed in the current screen. Tax act 2012 login Please click the link to view the image. Tax act 2012 login Figure 35-A. Tax act 2012 login Can You Claim an Education Credit for 2013? Prev  Up  Next   Home   More Online Publications
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IRS Statement on Court Ruling Related to Return Preparers

Update Feb. 21, 2014

On Feb. 11, 2014, the U.S. Court of Appeals for the District of Columbia Circuit upheld the decision of the lower court in the case of Loving vs. IRS, finding insufficient statutory support for the IRS’ regulation of federal tax return preparers.

Taxpayer reliance on paid tax return preparers and effective tax administration are inextricably linked to quality return preparation. As we assess the scope and impact of the court’s decision and determine our way forward, our focus on improved competency will continue.  

Please continue to check this site for additional information as it becomes available.

Background

On Friday, Jan. 18, 2013, the United States District Court for the District of Columbia enjoined the Internal Revenue Service from enforcing the regulatory requirements for registered tax return preparers. In accordance with this order, tax return preparers covered by this program are not required to complete competency testing or secure continuing education. The ruling does not affect the regulatory practice requirements for CPAs, attorneys, enrolled agents, enrolled retirement plan agents or enrolled actuaries.

On Friday, Feb. 1, 2013, the court modified its order to clarify that the order does not affect the requirement for all paid tax return preparers to obtain a preparer tax identification number (PTIN). Consistent with this modification, the IRS has reopened the online PTIN system. On March 29, 2013, the IRS appealed the district court opinion.

In July 2013, the IRS refunded testing fees to return preparers who tested or were scheduled to test on or after Jan. 18, 2013 (the date the registered tax return preparer test was enjoined). No decisions have been made about additional refunds related to registered tax return preparer regulations at this time.

 

 

Page Last Reviewed or Updated: 05-Mar-2014

The Tax Act 2012 Login

Tax act 2012 login 1. Tax act 2012 login   Scholarships, Fellowships, Grants, and Tuition Reductions Table of Contents Reminder Introduction Scholarships and FellowshipsTax-Free Scholarships and Fellowships Taxable Scholarships and Fellowships Reporting Scholarships and Fellowships Other Types of Educational AssistanceFulbright Grants Pell Grants and Other Title IV Need-Based Education Grants Payment to Service Academy Cadets Veterans' Benefits Qualified Tuition Reduction Reminder Individual retirement arrangements (IRAs). Tax act 2012 login  You can set up and make contributions to an IRA if you receive taxable compensation. Tax act 2012 login Under this rule, a taxable scholarship or fellowship is compensation only if it is shown in box 1 of your Form W-2, Wage and Tax Statement. Tax act 2012 login For more information about IRAs, see Publication 590. Tax act 2012 login Introduction This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. Tax act 2012 login The educational assistance can be for a primary or secondary school, a college or university, or a vocational school. Tax act 2012 login Included are discussions of: Scholarships, Fellowships, Need-based education grants, such as a Pell Grant, and Qualified tuition reductions. Tax act 2012 login Many types of educational assistance are tax free if they meet the requirements discussed here. Tax act 2012 login Special rules apply to U. Tax act 2012 login S. Tax act 2012 login citizens and resident aliens who have received scholarships or fellowships for studying, teaching, or researching abroad. Tax act 2012 login For information about these rules, see Publication 54, Tax Guide for U. Tax act 2012 login S. Tax act 2012 login Citizens and Resident Aliens Abroad. Tax act 2012 login Scholarships and Fellowships A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies. Tax act 2012 login A fellowship is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. Tax act 2012 login Amount of scholarship or fellowship. Tax act 2012 login   The amount of a scholarship or fellowship includes the following: The value of contributed services and accommodations. Tax act 2012 login This includes such services and accommodations as room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship. Tax act 2012 login The amount of tuition, matriculation, and other fees that are paid or remitted to the student to aid the student in pursuing study or research. Tax act 2012 login Any amount received in the nature of a family allowance as a part of a scholarship or fellowship. Tax act 2012 login Tax-Free Scholarships and Fellowships A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution. Tax act 2012 login A scholarship or fellowship is tax free only to the extent: It does not exceed your expenses; It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax act 2012 login (But for exceptions, see Payment for services,later. Tax act 2012 login Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income. Tax act 2012 login Candidate for a degree. Tax act 2012 login   You are a candidate for a degree if you: Attend a primary or secondary school or are pursuing a degree at a college or university, or Attend an educational institution that: Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency. Tax act 2012 login Eligible educational institution. Tax act 2012 login   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax act 2012 login Qualified education expenses. Tax act 2012 login   For purposes of tax-free scholarships and fellowships, these are expenses for: Tuition and fees required to enroll at or attend an eligible educational institution, and Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. Tax act 2012 login These items must be required of all students in your course of instruction. Tax act 2012 login Expenses that do not qualify. Tax act 2012 login   Qualified education expenses do not include the cost of: Room and board, Travel, Research, Clerical help, or Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution. Tax act 2012 login Payment for services. Tax act 2012 login   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. Tax act 2012 login This applies even if all candidates for a degree must perform the services to receive the degree. Tax act 2012 login (See exceptions next. Tax act 2012 login ) Exceptions. Tax act 2012 login   You do not have to treat as payment for services the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax act 2012 login Example 1. Tax act 2012 login You received a scholarship of $2,500. Tax act 2012 login The scholarship was not received under either of the exceptions mentioned above. Tax act 2012 login As a condition for receiving the scholarship, you must serve as a part-time teaching assistant. Tax act 2012 login Of the $2,500 scholarship, $1,000 represents payment for teaching. Tax act 2012 login The provider of your scholarship gives you a Form W-2 showing $1,000 as income. Tax act 2012 login Your qualified education expenses were at least $1,500. Tax act 2012 login Assuming that all other conditions are met, $1,500 of your scholarship is tax free. Tax act 2012 login The $1,000 you received for teaching is taxable. Tax act 2012 login Example 2. Tax act 2012 login You are a candidate for a degree at a medical school. Tax act 2012 login You receive a scholarship (not under either of the exceptions mentioned above) for your medical education and training. Tax act 2012 login The terms of your scholarship require you to perform future services. Tax act 2012 login A substantial penalty applies if you do not comply. Tax act 2012 login The entire amount of your grant is taxable as payment for services in the year it is received. Tax act 2012 login Athletic Scholarships An athletic scholarship is tax free only if and to the extent it meets the requirements discussed later. Tax act 2012 login Worksheet 1-1. Tax act 2012 login    You can use Worksheet 1-1, Taxable Scholarship and Fellowship Income , later, to figure the tax-free and taxable parts of your athletic scholarship. Tax act 2012 login    Worksheet 1-1. Tax act 2012 login Taxable Scholarship and Fellowship Income 1. Tax act 2012 login Enter the total amount of any scholarship or fellowship for 2013. Tax act 2012 login See Amount of scholarship or fellowship, earlier. Tax act 2012 login 1. Tax act 2012 login       If you are a degree candidate at an eligible educational institution, go to line 2. Tax act 2012 login If you are not a degree candidate at an eligible educational institution, stop here. Tax act 2012 login The entire amount is taxable. Tax act 2012 login For information on how to report this amount on your tax return, see Reporting Scholarships and Fellowships , earlier, in this chapter. Tax act 2012 login       2. Tax act 2012 login Enter the amount from line 1 that was for teaching, research, or any other services required as a condition for receiving the scholarship. Tax act 2012 login (Do not include amounts received for these items under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax act 2012 login ) 2. Tax act 2012 login     3. Tax act 2012 login Subtract line 2 from line 1 3. Tax act 2012 login     4. Tax act 2012 login Enter the amount from line 3 that your scholarship or fellowship required you to use for other than qualified education expenses 4. Tax act 2012 login     5. Tax act 2012 login Subtract line 4 from line 3 5. Tax act 2012 login     6. Tax act 2012 login Enter the amount of your qualified education expenses 6. Tax act 2012 login     7. Tax act 2012 login Enter the smaller of line 5 or line 6. Tax act 2012 login This amount is the most you can exclude from your gross income (the tax-free part of the scholarship or fellowship) 7. Tax act 2012 login     8. Tax act 2012 login Subtract line 7 from line 5 8. Tax act 2012 login     9. Tax act 2012 login Taxable part. Tax act 2012 login Add lines 2, 4, and 8. Tax act 2012 login See Reporting Scholarships and Fellowships , earlier, for how to report this amount on your tax return 9. Tax act 2012 login     Taxable Scholarships and Fellowships If and to the extent your scholarship or fellowship does not meet the requirements described earlier, it is taxable and must be included in gross income. Tax act 2012 login You can use Worksheet 1–1, Taxable Scholarship and Fellowship Income, later, to figure the tax-free and taxable parts of your scholarship or fellowship. Tax act 2012 login Reporting Scholarships and Fellowships Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable. Tax act 2012 login If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. Tax act 2012 login If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. Tax act 2012 login You must report the taxable amount whether or not you received a Form W-2. Tax act 2012 login If you receive an incorrect Form W-2, ask the payer for a corrected one. Tax act 2012 login For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions. Tax act 2012 login How To Report How you report any taxable scholarship or fellowship income depends on which return you file. Tax act 2012 login Form 1040EZ. Tax act 2012 login   If you file Form 1040EZ, include the taxable amount in the total on line 1. Tax act 2012 login If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1. Tax act 2012 login Form 1040A. Tax act 2012 login   If you file Form 1040A, include the taxable amount in the total on line 7. Tax act 2012 login If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7. Tax act 2012 login Form 1040. Tax act 2012 login   If you file Form 1040, include the taxable amount in the total on line 7. Tax act 2012 login If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7. Tax act 2012 login Schedule SE (Form 1040). Tax act 2012 login   To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. Tax act 2012 login If your net earnings are $400 or more, you must pay self-employment tax. Tax act 2012 login Use Schedule SE, Self-Employment Tax, to figure this tax. Tax act 2012 login Form 1040NR. Tax act 2012 login   If you file Form 1040NR, report the taxable amount on line 12. Tax act 2012 login Generally, you must report the amount shown in box 2 of Form(s) 1042-S, Foreign Person's U. Tax act 2012 login S. Tax act 2012 login Source Income Subject to Withholding. Tax act 2012 login See the Instructions for Form 1040NR for more information. Tax act 2012 login Form 1040NR-EZ. Tax act 2012 login   If you file Form 1040NR-EZ, report the taxable amount on line 5. Tax act 2012 login Generally, you must report the amount shown in box 2 of Form(s) 1042-S. Tax act 2012 login See the Instructions for Form 1040NR-EZ for more information. Tax act 2012 login Other Types of Educational Assistance The following discussions deal with other common types of educational assistance. Tax act 2012 login Fulbright Grants A Fulbright grant is generally treated as a scholarship or fellowship in figuring how much of the grant is tax free. Tax act 2012 login Pell Grants and Other Title IV Need-Based Education Grants These need-based grants are treated as scholarships for purposes of determining their tax treatment. Tax act 2012 login They are tax free to the extent used for qualified education expenses during the period for which a grant is awarded. Tax act 2012 login Payment to Service Academy Cadets An appointment to a United States military academy is not a scholarship or fellowship. Tax act 2012 login Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services and will be reported to you in box 1 of Form W-2. Tax act 2012 login Include this pay in your income in the year you receive it unless one of the exceptions, discussed earlier under Payment for services , applies. Tax act 2012 login Veterans' Benefits Payments you receive for education, training, or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax free. Tax act 2012 login Do not include these payments as income on your federal tax return. Tax act 2012 login If you qualify for one or more of the education benefits discussed in chapters 2 through 12, you may have to reduce the amount of education expenses qualifying for a specific benefit by part or all of your VA payments. Tax act 2012 login This applies only to the part of your VA payments that is required to be used for education expenses. Tax act 2012 login You may want to visit the Veteran's Administration website at www. Tax act 2012 login gibill. Tax act 2012 login va. Tax act 2012 login gov for specific information about the various VA benefits for education. Tax act 2012 login Example. Tax act 2012 login You have returned to college and are receiving two education benefits under the latest GI Bill: (1) a $1,534 monthly basic housing allowance (BHA) that is directly deposited to your checking account, and (2) $3,840 paid directly to your college for tuition. Tax act 2012 login Neither of these benefits is taxable and you do not report them on your tax return. Tax act 2012 login You also want to claim an American opportunity credit on your return. Tax act 2012 login You paid $5,000 in qualified education expenses (see chapter 2, American Opportunity Credit , later). Tax act 2012 login To figure the amount of credit, you must first subtract the $3,840 from your qualified education expenses because this payment under the GI Bill was required to be used for education expenses. Tax act 2012 login You do not subtract any amount of the BHA because it was paid to you and its use was not restricted. Tax act 2012 login Qualified Tuition Reduction If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. Tax act 2012 login This is called a “tuition reduction. Tax act 2012 login ” You do not have to include a qualified tuition reduction in your income. Tax act 2012 login A tuition reduction is qualified only if you receive it from, and use it at, an eligible educational institution. Tax act 2012 login You do not have to use the tuition reduction at the eligible educational institution from which you received it. Tax act 2012 login In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may not have to include the value of the free courses in your income. Tax act 2012 login The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education. Tax act 2012 login You must include in your income any tuition reduction you receive that is payment for your services. Tax act 2012 login Eligible educational institution. Tax act 2012 login   An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. Tax act 2012 login Officers, owners, and highly compensated employees. Tax act 2012 login   Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. Tax act 2012 login This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees. Tax act 2012 login The group must be defined under a reasonable classification set up by the employer. Tax act 2012 login The classification must not discriminate in favor of owners, officers, or highly compensated employees. Tax act 2012 login Payment for services. Tax act 2012 login   Generally, you must include in income the part of any qualified tuition reduction that represents payment for teaching, research, or other services by the student required as a condition of receiving the qualified tuition reduction. Tax act 2012 login This applies even if all candidates for a degree must perform the services to receive the degree. Tax act 2012 login (See below for exceptions. Tax act 2012 login ) Exceptions. Tax act 2012 login   You do not have to include in income the part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under: The National Health Service Corps Scholarship Program, or The Armed Forces Health Professions Scholarship and Financial Assistance Program. Tax act 2012 login Education Below the Graduate Level If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below. Tax act 2012 login You are an employee of the eligible educational institution. Tax act 2012 login You were an employee of the eligible educational institution, but you retired or left on disability. Tax act 2012 login You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability. Tax act 2012 login You are the dependent child or spouse of an individual described in (1) through (3), above. Tax act 2012 login Child of deceased parents. Tax act 2012 login   For purposes of the qualified tuition reduction, a child is a dependent child if the child is under age 25 and both parents have died. Tax act 2012 login Child of divorced parents. Tax act 2012 login   For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents. Tax act 2012 login Graduate Education A tuition reduction you receive for graduate education is qualified, and therefore tax free, if both of the following requirements are met. Tax act 2012 login It is provided by an eligible educational institution. Tax act 2012 login You are a graduate student who performs teaching or research activities for the educational institution. Tax act 2012 login You must include in income any other tuition reductions for graduate education that you receive. Tax act 2012 login How To Report Any tuition reduction that is taxable should be included as wages in box 1 of your Form W-2. Tax act 2012 login Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ). Tax act 2012 login Prev  Up  Next   Home   More Online Publications