IRS Grants Reprieve for College 1098-T Reporting

Prepared by:  Harrison Wadsworth (hwadsworth@wpllc.net)  

November 18, 2016

The Internal Revenue Service (IRS) has announced that it will delay the enforcement of a change to how institutions of higher education report tuition and fees on the 1098-T forms they provide to students and to the IRS so students/taxpayers can claim the American Opportunity Tax Credit and other tax breaks.  In a bill passed by Congress last December, the law was changed to require schools to report qualifying amounts actually paid rather than amounts billed.  Schools have been able to report either, and many report amounts billed as an administratively easier approach.  The 1098-T form has to be sent to the taxpayer and to the IRS. Another change in the law is to require the taxpayer to use the amount provided on a 1098-T to claim a tax credit.  In the past, the 1098-T was considered informational, leaving it up to the taxpayer to determine the amount to report on their individual tax return.

The IRS issued detailed new draft regulations in September 2016 to implement the change, which drew many comments from the higher education community.  Comments were due on October 31.  Since the regulations have not been made final, and it will probably be a few months before the IRS can address the comments and write final rules, it would be extremely difficult if not impossible for campuses to put systems in place to implement them in time for the 2017 calendar year.  The delay, which was requested by campuses and higher education organizations, including COHEAO, is a welcome, practical approach by the IRS.

According to the announcement, “The IRS will not impose penalties under section 6721 or 6722 (of the Internal Revenue Code) on eligible educational institutions with respect to Forms 1098-T required to be filed and furnished for the 2017 calendar year … if the eligible educational institution reports the aggregate amount billed for qualified tuition and related expenses on Form 1098-T instead of the aggregate amount of payments received….

“Eligible educational institutions, therefore, will continue to have the option of reporting either the amount of payments of qualified tuition and related expenses received in Box 1 of Form 1098-T or the amount of qualified tuition and related expenses billed in Box 2 of Form 1098-T for the 2017 calendar year with being subject to penalties.”

The full IRS announcement with additional background can be found here.