Summary of Federal Laws
Tax Issues Related to Students
|Director of Enrollment Services, Business Systems
Tuition Payment Credit Reporting Requirements
In general, section 6050S requires eligible educational institutions who receive payments of qualified tuition and related expenses to file information returns and to furnish written information statements to assist taxpayers and the IRS in determining any education tax credit allowable under the Hope Scholarship or Lifetime Learning Credit as well as other tax benefits for higher education expenses.
The reporting to both students and the IRS is accomplished by using Form 1098-T "Tuition Payments Statement". This form is filed with the IRS for each individual with respect to whom payments of qualified tuition and related expenses were received, or reimbursements or refunds of such expenses were made. The university does not have to file a 1098-T on a student when a refund is issued in an amount equal to or greater than the amount the student paid. The information reporting requirements of this section do not apply with respect to any individual who is a nonresident alien during the calendar year, unless the individual requests the institution or insurer to report. The institution is also not required to file a report for an individual who receives no academic credit; for students whose tuition and related expenses are covered by a formal billing arrangement between the institution and the student's employer; or for students whose tuition and related expenses are entirely waived or paid entirely with scholarships.
Thus, payments for employees made under I.R.C. § 127 (tuition assistance programs) do not have to be reported. The standards in the Higher Education Act should be used to determine full-time, half-time, or less than half-time status.
Copies of Form 1098-T must be sent to all covered students by Jan. 31st of the year following that payments were received or refunds were given.
From 26 US Code 25A(f)
(A) In general The term “qualified tuition and related expenses” means tuition and fees required for the enrollment or attendance of—
(i) the taxpayer,
(ii) the taxpayer’s spouse, or
(iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151,
at an eligible educational institution for courses of instruction of such individual at such institution.
(B) Exception for education involving sports, etc.
Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual’s degree program.
(C) Exception for nonacademic fees
Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual’s academic course of instruction.
(2) Eligible educational institutionThe term “eligible educational institution” means an institution—
(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this section, and
(B) which is eligible to participate in a program under title IV of such Act.
Final Rules on Information Reporting for Qualified Tuition and Related Expenses and
Magnetic Media Filing Requirements for Information Returns, 67 Fed. Reg. 77678 (Dec. 19, 2002)
The final regulations reflect changes made to the law by the Taxpayer Relief Act of 1997 and the amendments made by the Internal Revenue Service Restructuring and Reform Act of 1998 and Public Law 107-131. These regulations provide guidance to eligible educational institutions that enroll any individual for any academic period. These regulations are effective December 19, 2002.
For calendar years beginning after December 31, 2002, institutions may elect to report either the aggregate amount of payments received, or the aggregate amount billed, for qualified expenses during the calendar year with respect to individuals enrolled for any academic period.
Institutions must report separately adjustments (i.e., refunds of payments or reductions in charges) made during the calendar year to payments received, or amounts billed, for qualified expenses that were reported in a prior calendar year. In addition, institutions must report the aggregate amount of scholarships or grants received for an individual's costs of attendance that the institution administered and processed during the calendar year. Institutions must report separately adjustments (i.e., refunds or reductions) made during the calendar year to scholarships that were reported in a prior calendar year.
There is no reporting requirement by educational institutions when qualified tuition/related expenses are paid entirely by a scholarship or waived "in their entirety" by the institution, Treas. Reg. 1.6050S-1(a)(2)(iii), nor is reporting required for nonresident alien students, unless the NRA student requests reporting. Treas. Reg. 1.6050S-1(a)(2)(i).The reporting must be made on a calendar year basis. Institutions need not report on any noncredit courses (even if student is enrolled in a degree program.) The Department of Education has recently determined that an institution will not violate FERPA if it chooses to report information on all students in accordance with section 6050S, even if the regulations provide an exception to required reporting. If more than 250 1098-T return statements must be transmitted to the IRS, magnetic media must be used. The 2002 proposed regulations provide an exception to reporting for any student whose qualified expenses are paid by the student's employer through a formal billing arrangement under which the employer's employees attend the institution, the institution bills only the employer, and the institution does not maintain a separate account for any employee/student. The final regulations expand the exception to cover formal billing arrangements between an institution and a governmental entity under which the institution bills only the governmental entity and does not maintain a separate account with respect to any individual student. In addition, the final regulations authorize the Commissioner to designate additional types of formal billing arrangements for which no reporting will be required.
1098-T reporting requirements:
Provide Information Return (Form 1098-T) to all students (except those excluded) with the following:
· the name, address, and taxpayer identification number of the institution;
· the name, address and taxpayer identification number of the individual with respect to whom payments of qualified tuition and related expenses were received, or to whom refunds or reimbursements were made;
· an indication by the institution whether the individual was enrolled for at least half of the normal full-time workload for the course of study pursued;
· an indication by the institution whether the individual was enrolled in a program leading to a graduate-level degree, graduate- level certificate, or other recognized graduate-level educational credential; and
· any other information required by the Form 1098-T.
The mailing to the student must also include a legend that identifies the statement as important tax information being furnished to the IRS, as well as the following:
· A statement that the taxpayer may not be able to claim an education tax credit under Section 25A with respect to the total payments reported.
· A statement that the amount of any scholarships, grants, refunds or reimbursements reported for the calendar year and other similar amounts not reported (as not processed by the institution) may reduce the amount of any allowable education tax credit.
· A statement that the taxpayer should refer to Publication 970 (Tax Benefits for Higher Education) and other relevant forms and publications.
· The name, address, and phone number of the information contact for the institution filing the form.
The statement should be mailed to the individual's permanent address, or the individual's temporary address if the institution or insurer does not know the individual's permanent address. See 26 CFR 1.6050S-2T for the rules on how to provide Form 1098-T electronically to students. The conditions for using electronic distributions of Form 1098-T to students are fairly extensive, and incorporate consent provisions. See also Part H of Instructions for Forms 1099, 1098, 5498 and W-2G.
Schools must provide to the IRS Form 1098-T for each student enrolled and for whom a reportable transaction is made. The same information that is required to be reported to students must be sent to the IRS.
An institution must request the taxpayer identification number (TIN)1 of each individual with respect to whom payments of qualified tuition were received, or reimbursements or refunds were made, if it does not already have a record of the individual's correct TIN. If the institution does not have a record of the individual's correct TIN, then it must solicit the TIN on or before December 31. Since the Form 1098-T does ask for the student's social security number, this information should be collected. When the person does not know the number, pursuant to 26 C.F.R. § 301.6109-1, the person filing with the IRS must request the other person's number, stating that it is required to be furnished under authority of law. Once this request provision has been followed, and if a number still has not been provided, the person making the request must sign an affidavit on the transmittal document forwarding such returns, statements or other documents to the IRS.
An institution must notify the individual that the individual's failure to furnish his/her TIN to the institution may result in a $50 penalty being imposed against the individual as authorized by law. A request for a TIN made on Form W-9S, "Request for Student's or Borrower's Social Security Number and Certification," satisfies the requirements. An institution that follows the regulations for soliciting a TIN will be considered to have acted in a responsible manner and will not be subject to penalties under I.R.C. § 6721.
Waiver of penalties for failures to include a correct TIN--(i) In general. In the case of a failure to include a correct TIN on Form 1098-T or a related information statement, penalties may be waived if the failure is due to reasonable cause. Reasonable cause may be established if the failure arose from events beyond the institution's or insurer's control, such as a failure of the individual to furnish a correct TIN. However, the institution or insurer must establish that it acted in a responsible manner both before and after the failure.
The specific solicitation requirements of paragraph (e)(3)(iii) of this section apply in lieu of the solicitation requirements of Sec. 301.6724-1(e) and (f) of this chapter for the purpose of determining whether an institution or insurer acted in a responsible manner in attempting to obtain a correct TIN.
iii) Manner of soliciting TIN. An institution or insurer must request the individual's TIN in writing and must clearly notify the individual that the law requires the individual to furnish a TIN so that it may be included on an information return filed by the institution or insurer. A request for a TIN made on Form W-9S, ``Request for Student's or Borrower's Social Security Number and Certification,'' satisfies the requirements of this paragraph (e)(3)(iii). An institution or insurer may establish a system for individuals to submit Forms W-9S electronically as described in applicable forms and instructions. An institution or insurer may also develop a separate form to request the individual's TIN or incorporate the request into other forms customarily used by the institution or insurer, such as admission or enrollment forms or financial aid applications.
The preamble to the proposed regulation states that if an institution requests an individual's TIN through admission or enrollment forms or financial aid applications then the institution does not have to make a separate request to the taxpayer identification number (TIN)1 the student.The preamble also states that the school does not need to notify the student of the $50 penalty that may be imposed by the IRS.
Paragraph (iii) above seems most applicable to soliciting numbers that are not obtained through regular business processes.
1 A taxpayer identification number (TIN) can be either a social security number (SSN), an individual taxpayer identification number (ITIN) issued to those not eligible for SSNs, or an employer identification number (EIN) which is issued to any person other than an individual, an individual who is an employer, or a sole proprietor. See IRS Publication 515.
The Announcement states that the IRS is extending the relief period for institutions reporting the aggregate amounts billed for qualified tuition and related expenses, instead of the aggregate amount of payments received, through the 2017 calendar year. I
This announcement provides notice that the IRS will not impose penalties under section 6721 or 6722 on eligible educational institutions with respect to Forms 1098-T, Tuition Statement, required to be filed and furnished for the 2016 calendar year under section 6050S if the institution reports the aggregate amount billed for qualified tuition and related expenses on Form 1098-T instead of the aggregate amount of payments
received. Relief is limited to forms filed for 2016, which are due by March 31, 2017 if filed electronically.
The IRS provides a detailed (30 page) publication with instructions and suggestions on how to respond and request a penalty waiver; it has a section on page 5 titled "How to Answer Notice 972CG" - it is IRS Pub. 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs.
NACUBO Advisory Report 2014-1 Collecting Taxpayer Identification Numbers for Form 1098-T Reporting, Oct. 1, 2014. This is a very helpful memo advising schools on best practices for collecting TINs from students for 1098-T reporting purposes. While a student is potentially subject to fines for failing to provide a TIN, a school may avoid fines by showing it has met the annual solicitation requirements. A copy of the relevant code (26 CFR 1.6050S-1(e) is included in the appendix of this report, along with a sample substitute for a W-9S as well as the regular tax for W-9S. NACUBO suggests as a best practice soliciting twice per year, e.g. in early October and then again in early November, with a December deadline. Electronic communication meets the written requirement of the code. NACUBO also suggests running a query for invalid TINS, and gives tips on what numbers or groups of numbers might be invalid. A note should be included that the IRS requires this information and failure to do so may result in a penalty from the IRS.
Another suggestion is to coordinate with the Office of International Student and Scholar Services. Although institutions do not have to file ITINs or nonresident aliens, ISSS may be able to help determine which students are resident and which are non-resident. There should be a choice to respond that the student does not have a TIN and does not file a U.S. tax return, for this population.
Another good note of caution is to advise students not to email their TIN, but to deliver in person to the Registrar's Office. For online students, a secure portal to upload the info is advised, or the U.S. mail could be used. Schools should retain a list of records of students contacted each year, along with the message sent. Any students who refuse to provide their TIN should be noted on the list.
When there are missing or incorrect TINs, see IRS Publication 1586: Reasonable Cause Regulations for Missing and Incorrect Names/TINS.
NACUBO May 2, 2014 Update on 1098-T Penalties: NACUBO has asked the IRS to issue guidance that would waive penalties for IHEs that file 1098-T forms with incorrect or missing TINs until a long term solution can be found.
updated 7-22-16 to add limited penalty relief on 1098-T filing'
updated 10-20-16 to add definition