Using my own accounting for AOTC vs using college accounting as shown in their 1098-T statements

Hi,
My daughter is a Jr at Mt Holyoke college. Mt. Holyoke reports scholarships that reduce the amount due in December bills in January, and thus splits their reporting of 1098-T Box 1 QEE amounts and Box 5 Scholarship amounts. I always thought their accounting was odd, but it never caused a tax problem until now. My daughter is taking the spring semester off, and so Mt Holyoke reported two scholarship payments (January and September) and only one QEE payment (July) on this year’s 1099-T. This caused her reported scholarship amount to be over her QEE by about $5000. In 2019 she actually paid almost $10,000 more QEE than scholarships received. So, no AOTC. I’d appreciate the community’s input on my plan.

Plan:

  1. Do a spreadsheet with my own accounting of my daughter’s QEE and scholarships based on the worksheet on the last page of the “Instructions for Form 8863”. Worksheet deduction 2B “Tax-free education assistance received in 2020 allocable to the academic period” appears to give me permission to apply scholarships that Mt Holyoke accounts for in January in December. This is essential because it unites QEE-generating payments with the scholarships that adjust those payments in the same tax years. (

Start this spreadsheet at the beginning of her freshman year.

  1. Keep records of tuition bills paid that show QEE and scholarships.

  2. I’ve already done this spreadsheet, and I since still have $4000 of QEE after all adjustments according to my accounting, I don’t think I have to file any amended returns.

  3. “Fool” my tax software (TaxAct) by telling it the 1098-T box 5 (scholarship) numbers from my accounting, not from Mt. Holyoke’s accounting. I’d do something more elegant, but TaxAct doesn’t have any workaround.

Once my tax software is fooled it’s happy to give me the AOTC for my daughter. I’ve checked carefully and the 1098-T numbers don’t appear to be transmitted on my tax return to the IRS, which makes me feel less bad about putting my own box 5 numbers. I suppose that the IRS might ask me to justify my taking the AOTC based on the very different 1098-T that they get directly from Mt Holyoke, but as long as my interpretation of the Form 8863 worksheet is correct and I have documentation I should be OK.

What does everyone think?

Thanks,
Dad with 3 Juniors in college

Not a direct comment or critique of your accounting, but I’ve always felt that in most circumstances it’s best to pay for QEE in the same calendar year in which those payments will be applied. In other words, for a semester that begins in January, make the payment in January. I understand that schools often set spring semester payment due dates in December, but my personal experience (obviously not transferrable to all other situations) is that the school acknowledges why this may be the best thing for the student (parent) to do and the school therefore provides some latitude without penalty as to when the payment is made.

The “normal” four year undergraduate experience occurs over five tax years, so making payments in all five of those years allows for five years of education tax credits to be claimed – typically, four years of the American Opportunity Credit and one year of the Lifetime Learning Credit. Making payments for the fall semesters in July or August and for the spring semesters in January, over five years, may also better align with the way that the school credits scholarship and grant funds to the student’s account, which could make claiming the tax credits an easier and more transparent process.

Thanks, that’s an interesting strategy going forward. For 2019 do you agree that I can interpret the worksheet instructions on the last page of “Instructions for Form 8863” as giving me permission to apply scholarships that Mt Holyoke accounted for in January 2019 to their matching December 2018 QEE? This is essential because matching QEE and scholarships in past tax years is my only way to make 2019 make sense.

I have thought about this as well. My S’s spring semester starts late because of a winter session, so his grants and scholarships and loans are applied to his account in January.

In his last semester he would only show scholarships. I am planning on paying the bill late for that semester. Usually it is due on December 20.
The school is a state school and charges a late fee of $50 but I think it will be worth it if I can claim the LLC and get a few hundred dollars.

Making this situation more complicated is the fact that he would graduate from college during that tax year and would hopefully start working full time, in that case I might not be able to claim the education credit, but he might (depending on his income).

I agree that the scholarships should be able to be allocated to the charges from the previous year to be able to get tax free status.

But I don’t know that you can claim AOTC if you have not paid QEE during that particular tax year.

We had this situation when my D was in junior year, in previous years the school reported billed tuition and fees and scholarships received for two semesters on the 1098T.

With the change in reporting , where the school now had to report on the 1098T was was paid in tuition and fees, it changed things.

We had paid the spring bill in December as always, but now only had one semester of fees to claim for AOTC (she had a tuition scholarship and we would only claim fees and books towards AOTC) that tax year.

The upside for her was that she only had one semester of taxable scholarship to report for that tax year as well, avoiding kiddie tax.

Thanks for your reply. As long as “scholarships should be able to be allocated to the charges from the previous year” is true than I’m all set, as my daughter has almost $10,000 of adjusted net QEE in 2019 as long as her 2019 single tuition payment isn’t matched with two scholarship payments.

There should be a question about the 1098T where it asks if anything reported on the form is for another tax year.

Her scholarships should be able to be matched to the charges in the previous year.
As long as they covered QEE to qualify to be nontaxable.

If she or you paid any QEE in 2019 that wasn’t offset by nontaxable scholarships then that amount should be able to be claimed for an education credit.

See if it is better to have her report the scholarships as taxable income for 2020 in order for you to claim AOTC for 2019.

If there is enough AQEE from 2019 even with the spring scholarships, then she might not need to report them as taxable income.

But be prepared for a possible audit since the 1098T will show higher amount in box 5 than box 1.

You can’t.

I don’t think you can move payments (scholarships) credited in 2019 to a 2018 payment. A bill? Yes, but an actual payment no. You really should keep all payments in the right tax year. Many schools will allow you to pay on Jan 1 if you tell them about the tax issues.

I always kept all the payments in the same tax year. Billed for spring semester in Dec, but I never paid it until Jan 1 because none of the FA or scholarships or even loans were applied until January. So yes, ALL the 1098s were wrong for 2 kids in 2 schools. I just did my own accounting. On the tax programs like turbo tax or TaxAct, it would ask you to put in the 1098 info and then ask “Is this correct?” I’d answer no and then it would ask me to input the correct info and I’d put in my own figures. I used the school’s bill to track the date of the charges (tuition, fees) and how those were paid (scholarship, FA, OOP).

The LLC has a very low qualifying income. It is also not a ‘refundable’ credit so extremely low income parents who might qualify for the LLC may have no taxes due to use the credit.

I guess it depends on your definition of “very low qualifying income.” The LLC income limits, while lower than those for the AOTC, are a still higher than what many American families earn: $68,000 for single and HoH filers, and $136,000 for MFJ filers. And if the student is not claimed as a dependent on someone else’s tax return for the student’s last tax year in school, the student, who may have a lower MAGI in that year than the parent(s), can claim the LLC on his/her return.

I never had a problem calling the bursar’s office and getting wiggle room on a payment. I found the person at the other end of the phone ALWAYS willing to go the extra mile to come up with a solution. One kid had an outside scholarship with a funky payment date-- my choices seemed to be to overpay the bill and get a credit going forward once the outside organization sent the check to the college, or to incur a late fee by only making a partial payment, or to start a payment plan with the administrative charge. None of these seemed like good choices, so I called the college in August before freshman year began to explain. I got a call back very quickly to say that they had adjusted the “due by” date on the bill so I wouldn’t get a late fee, and did I need the same adjustment for second semester (“yes please”.)

We had an unexpected financial blip with a different kid at a different college-- another timing problem and a cash crunch, and the bursar’s office could not have been more gracious about finding a solution. There was a discrepancy on a bill before one kid graduated (and the policy was- you owe money, you don’t get your degree until your account has been settled) and I just called and said “I don’t understand what this line item is - can you explain?” and the person on the phone said “I don’t know what it is either, so I’m going to take it off”.

So if you want your payments to match up with the correct tax year- pick up the phone!

I was just mentioning the possibility of my S or us claiming the LLC for his last semester. We would claim four full years of AOTC first.

His school lists QEE payment for two semesters on the 1098T and one semester of scholarships.
Because normally the spring bill is due in December, but aid is posted in January when school reopens after Xmas break.

So I said I might consider to pay the last semester bill late in January and incur the $50 late fee in order to claim the LLC for that last QEE payment.

Let’s say we paid $5,000 for last semester QEE and he got $2,000 in scholarships, then we would still have $3,000 AQEE to claim towards LLC which could potentially give us a $600 credit.

That would more than offset the $50 fee.

In other years it didn’t make sense for us to pay a late fee since it didn’t affect the possibility of claiming the AOTC.

In OP’s case I think they need to look at what was actually paid in 2019 to figure out what they can claim towards AOTC.

Then they can look at how to treat the scholarships she received in 2020.

They might either be taxable income to her or be able to be matched to qualified expenses to be able to be treated as tax-free scholarships.

Thank you everyone for your help. I’m getting a huge boost in my understanding by switching to TurboTax. In their 8863 process they say “Scholarship income must reduce qualified education expenses for each period of study that assistance is allocable to. However, sometimes scholarship income is not received at the same time education expenses were paid. This can cause your scholarship income to be overstated in one year and then understated in another year. If you received scholarships or grants in 2019 for expenses reported in a year other than the current year, enter an amount here to reduce your scholarship income amount. You will need to include that same amount as scholarship income in the tax year in which the education expenses are actually reported.” This supports my feeling that I can move Jan 2019 scholarships to Dec 2018 to align them with their matching QEE.