IRS Proposes to Change Rules for Tuition Expenses

The Internal Revenue Service has proposed new regulations that could change the rules for reporting qualified tuition and related expenses for students.

The proposed regulations would alter the rules for reporting qualified tuition and related expenses under section 6050S of the Tax Code on Form 1098-T, “Tuition Statement.” The proposals would conform the rules with changes made to the Tax Code by the Protecting Americans from Tax Hikes Act of 2015, also known as the PATH Act, as well as the Trade Preferences Extension Act of 2015, or TPEA. The changes would affect educational institutions that are required to file Form 1098-T along with taxpayers who are eligible to claim an education tax credit.

The PATH Act made the American Opportunity Tax Credit permanent and retroactively extended the section 222(e) deduction for qualified tuition and related expenses for taxable years beginning after Dec. 31, 2014 and ending on or before Dec. 31, 2016. The PATH Act also amended the Tax Code to provide that the AOTC is not allowed if the student’s Taxpayer Identification Number and the TIN of the taxpayer claiming the credit are issued after the due date for filing the return for the taxable year. The AOTC is also not allowed if the tax return does not include the Employer Identification Number of the higher education institution to which the tuition and related expenses were paid.

The PATH Act requires eligible educational institutions to report their EIN on the tax return and statement. The law also eliminates the option for educational institutions to report the aggregate of the qualified tuition and related expenses they bill for the calendar year. Instead, they must report aggregate payments they received during the calendar year.

Both the PATH Act and the Trade Preferences Extension Act added new requirements for claiming education tax benefits. For example, under the TPEA, a student is required to receive a Form 1098-T in order to claim the Lifetime Learning Credit or the AOTC or to claim the deduction under section 222. The PATH Act further restricts the ability to claim the AOTC. First, a taxpayer can claim the AOTC only if the return on which the credit is claimed includes the EIN of any educational institution to which the qualified tuition and related expenses are paid. On top of that, taxpayers can claim the AOTC only if the student’s TIN and the taxpayer’s TIN, on the return for which the credit is claimed, are issued on or before the due date of the original return.

Form 1098-T helps taxpayers find out if they are eligible to claim education tax credits under section 25A or the deduction for qualified tuition and related expenses under section 222. However, before the TPEA, there was no requirement that a taxpayer—or their dependent, if the taxpayer’s dependent is the student—receive a Form 1098-T to claim the tax benefits. Section 804 of the TPEA institutes those requirements. For qualified tuition and related expenses paid during taxable years beginning after June 29, 2015, the TPEA provides that a taxpayer must receive a Form 1098-T to claim either a credit under section 25A or a deduction under section 222.

The proposed regulations reflect these changes. A public hearing on the proposed rules is planned for November 30.