If you're a student committed to financing your education out of your own pocket, the IRS's Form 1098-T is a crucial component of your annual tax return. Before you can properly file your taxes, you'll need to obtain your 1098-T and ensure that it's included with the package that you send to the IRS. If you're filing your taxes manually, this is easy. Your higher education institution is required to send you a Form 1098-T by the end of each February. Once you receive it, you'll use it to fill out your tax return and retain the document for your records.
Although it's used by millions of hardworking American college students on an annual basis, Form 1098-T is often overlooked by tax preparation specialists. Most of the tax filers who use the form have relatively few assets and don't often utilize in-person tax filing services.
The form is simple enough to understand. It contains a written accounting of the exact value of the tuition payments that you've made to your school over the course of the past year. If you attended multiple higher education institutions over the course of the tax year, you'll receive a Form 1098-T from each of them.
The form also contains an accounting of all of the scholarships, grants, disbursements and other cash infusions that you've received from your college or university. While these payouts don't directly offset the tuition payments that you made to the institution, they're important because they may have tax implications of their own. In certain situations, you may be required to claim these payouts as taxable income. Any scholarships or grants not specifically earmarked for education expenses like tuition fees and school supplies will almost certainly count towards your total taxable income for the year.
Now that online tax filing is prevalent, the protocols for Form 1098-T have changed slightly. The IRS still requires your school to send you the form by the end of each February. However, you may elect to receive the form electronically. If you choose to do so, you'll want to print a copy for your records.
If you file your taxes online, you'll need to copy the information contained on your Form 1098-T into the appropriate box on your online tax return. You must make sure to transcribe the "debts" and "gains" figures onto your tax return accurately. If you make an erroneous transcription, you may face an IRS audit.