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Entering education expenses in ProSeries

by Intuit Updated 1 year ago

This article will help you understand the ideal workflow for entering education expenses in ProSeries to generate the maximum credit or deduction the return qualifies for. There are four main steps that should be completed to generate the best available credit or deduction:

For tax year 2021:

  • Tuition and Fees Deduction (Form 8917) has been repealed starting in Tax Year 2021.
  • American Opportunity Credit & Lifetime Learning Credit (Form 8863) changes:
    • Expanded Lifetime Learning Credit to phase outs that mirror American Opportunity Credit in 2021
    • MAGI phase out range --$160,000 --$180,000 married filing joint; $80,000 --$90,000 other filers

Step 1: Activating the Student Info Worksheet

  1. Open the tax return to the Federal Information Worksheet.
  2. If a dependent is the student::
    1. Scroll down to Part III Dependent/Earned Income Credit/Child and Dependent Care Credit Information.
    2. Enter the basic identification information.
    3. Check the box for Educ Tuition and Fees box.
    4. Click the QuickZoom to the Dependent Student Information Worksheet.
  3. If the taxpayer or spouse is the student:
    1. Scroll down to Part X - Additional Federal Return Information.
    2. Scroll down until you see the Education Expenses checkboxes.
    3. Check the box for either Taxpayer or the spouse showing they have qualified education expenses.
    4. Click the QuickZoom to the Student Information Worksheet.
  4. You can have as many Student Information Worksheets as you need for the tax return. Just make sure every student has their own Student Information Worksheet, as their name will be at the top.

Step 2: Determining credit and deduction eligibility

For each Student Information Worksheet you'll need to complete Part 1 and Part II for ProSeries to determine which credits or deduction the student is eligible for.

Once both Part 1 and Part 2 are complete, ProSeries will show in Part III which credits or deudctions the student is eligible for. If the student is ineligible, it'll give a brief description of why.

Step 3: Entering education expenses

On the Student Information Worksheet you can enter education expenses from a 1098-T, a 1099-Q, and expenses not received on a form.

  1. On the Student Information Worksheet, scroll down to Part I line 3.
  2. Select the QuickZoom to Form 1098-T Worksheet, Tuition Statement.
  3. Enter the name of the school and select Create.
  4. Under 1098-T Information (Required) complete the checkboxes to show if these are current year, or prior year, expenses.
  5. Under Identify Student (Required) check the box for either taxpayer or spouse, or double-click to select a Dependent.
  6. Complete the filer's information and boxes 1–10 from the 1098-T received.
  7. Review the additional lines below line 10 to see if any apply to the tax situation.
  1. On the Student Information Worksheet, scroll down to Part I line 3.
  2. Select the QuickZoom to Form 1099-Q, Payments from Qualified Education Programs.
  3. Enter the name of the payer and select Create.
  4. Under Designated Beneficiary and Recipient complete the checkboxes to show who was the designated beneficiary and who was the recipient.
  5. On line C or line D double-click to link the 1099-Q worksheet to a Student Information Worksheet.
  6. Complete the payer's information and boxes 1–6 from the 1099-Q received.
  7. Review the additional lines below line 6 to see if any apply to the tax situation.

Per the tax help for 1098-T, box 4: 

"This amount represents refunds of qualified tuition and related expenses made during the calendar year that were reported on a prior year Form 1098-T.  If you receive such refunds, you may be required to "recapture" credits or deductions taken in prior years. The program does not handle this situation for you. See the IRS instructions for Form 8863 to see if you are required to pay a recapture tax for the education credits. See IRS Publication 970 and Publication 525 for instructions for the recapture of the tuition and fees deduction."

If you do need to enter the "recapture",  the amount will be entered on Form 1040 in the Tax Smart Worksheet, line E. It'll then flow to 1040, Line 11, section, line 'a' with an "ECR" notation to the left of the line number. To get to the Tax Smart Worksheet:

  1. Open the 1040/1040SR WKS.
  2. Scroll down to the Tax Smart Worksheet.
  3. In the Tax Smart Worksheet, enter the amount that you calculated on line E - Recapture tax from Form 8863.
  1. On the Student Information Worksheet, scroll down to Part IV - Educational Institution and Tuition Summary.
  2. Enter any additional schools that tuition was paid for.
  3. Scroll down to Part VI - Education Expenses.
  4. In the table available, enter any additional qualified education expenses.

On an Individual tax return with a distribution from a state 1099-Q for a Qualified Tuition Plan (QTP), a portion of the "Basis" entered on Form 1099-Q, line 3 being taxed as "Other income" on Form 1040. The education expenses entered are greater than the amount of earnings.

Why is this happening?

The taxable portion is calculated on the 1099-Q summary lines 16 through 23.

  1. When the taxpayer is the designated beneficiary, the earnings for distributions for the taxpayer are multiplied by the ratio (not more than 1.0) of the taxpayers net education expenses over the gross QTP distributions (after rollovers and transfers) for the taxpayer.
  2. When the taxpayer isn't the designated beneficiary, the earnings for distributions for each designated beneficiary, is multiplied by the ratio (not more than 1.0) of each of the designated beneficiary's net education expenses over the gross QTP distributions (after rollovers and transfers), for each designated beneficiary.
    • This is calculated separately for each designated beneficiary on a Form 1099-Q received by the taxpayer.

For more information refer to IRS Pub. 970.

Qualified Education Expenses won't be used to offset the taxable distributions if the beneficiary's Social Security number doesn't match what's entered on the Federal Information Worksheet.

Step 4: Run the optimizer

  1. On the completed Student Information Worksheet scroll down to Part VII - Education Credit or Deduction Election section.
  2. Select the QuickZoom to launch Automatic Education Expenses Optimizer.
  3. In Part II - Optimize Education Expenses for the Lowest Tax check box 1 to Launch OPTIMIZER.
  4. Review the summary in Part III to see what impact the education expenses had on the tax return.
    • If you make any changes to the education expenses or the Student Information Worksheet you'll need to launch the optimizer again to see the changes on the tax forms.

What if something doesn't look right?

This quick table shows you some of the most frequent areas to double-check for specific tax scenarios:

Scholarship is being taxedStudent Info Wks,Part V, Line 9In part V, line 7 make sure the amount used for qualified expenses is entered. If the expenses are not at least the amount of the scholarship NOT used for ed expenses will be taxable.
Credits reduced or not calculating because of 529 distributionStudent Info Wks,Part VIII, Line 3Are education expenses at least as much as distribution?
Where do I enter bonds cashed for education purposes?Student Info Wks,Part XInfo will then flow to form 8815.
Credit is not calculating:Amount of scholarship vs. expenses.If scholarship meets (or exceeds) expenses, no credit will calculate since student did not pay anything.
Credit is not calculating:Is student in High School?Education credits are not for HS students.
Credit is not calculating: 1040, line 15Does the return have any taxable income?
Credit is not calculating:1040, line 15Is taxable Income above AGI limitations?
  1. Open the New York return.
  2. Open the College Tuition Qualified Expenses Optimization Worksheet.
    1. Press F6 to bring up Open Forms.
    2. Enter COL and click OK.
  3. Review the information that transferred from the Federal Return.
  4. Complete column G for undergraduate expense.
  5. In Part II check box 1 to launch the optimizer.

Taxpayers are allowed to claim a Tuition and Fees Deduction for qualified higher education expenses as an adjustment to income (above the line). The allowable deduction is based on the taxpayer's modified AGI.

The Tuition and Fees Deduction can't be claimed if the either the American Opportunity Credit, the Hope Credit, or Lifetime Learning Credit is claimed for the same student in the same year.

In ProSeries, Form 8917, Tuition and Fees Deduction, is fully calculated. All information transfers from the Tuition and Fees Worksheet if the Tuition and Fees Deduction has been selected by using either the manual or automatic method.

Information necessary for this deduction is entered on the Education Tuition and Fees Worksheet, the Qualified Education Expenses Worksheet, and the Form(s) 1098-T-Form 1098-T Worksheet.

For more information, refer to IRS Pub. 970 or the IRS instructions for Form 8917.

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