September 6, 2017 – Education Benefits Workshop Highlights

Reporting source: IRS Oakland SPEC

Education Benefits – Slide Deck PDF – courtesy of AARP Foundation

 

For Education Credits

Qualifying expenses

  • ALWAYS includes tuition and fees that must be paid to the school as a condition of enrollment, course-related books, supplies and equipment
  • ALWAYS excludes insurance, medical expenses (like student health fees), parking fees
  • USUALLY excludes room and board, and transportation

NOTE: A computer is NOT a qualified expense, unless it is REQUIRED by the institution. The actual law says it must be required. If you look at tax court cases, the judge is not unsympathetic to the person, but they always rule by what the actual law says (about the equipment being required).

Scholarships for purposes of claiming EITC are considered unearned income.
Scholarships for purposes for calculating taxable income are earned income.
Scholarship money doesn’t count for support test for dependency.

 

Coverdell Education Savings Account (ESA)

Computer equipment is a qualified expense if it is “used by the beneficiary in post-secondary school (or used by the beneficiary and family in elementary or secondary school)”, from the Pub. 970.

 

Other questions

Is there a difference between a grant and scholarship?
Definition-wise in general, yes. But for tax purposes, they are treated the same.

Is a stipend taxable?
Stipends are always taxable. Sometimes it’s exempt from social security and medicare taxes.

Taxpayer withdrew from IRA (and is under 59.5 years old). He used it for room and board while going to a qualified educational institution. Is he subject to the withdrawal penalty of 10%?
No. Use Form 5329 and look up the exception code.

 

Attachments (provided during training)