The Internal Revenue Service (IRS) requires universities, colleges and post-secondary institutions who received “qualified educational expenses” to complete 1098-T tax forms for eligible students in the preceding tax year. As with other information returns, the form must be sent to the student by January 31.
Complying with the reporting requirements for IRS form 1098-T has been a difficult process for many educational institutions. Over the past few years, the IRS has made changes to the tax form because of errors in reporting, specifically with Box 1 and Box 2. We’re going to provide an overview of those changes and solutions for being in compliance to avoid IRS penalties.
Changes made to 1098-T
In 2016, the IRS first introduced significant changes that required educational institutions to report payments received for qualified tuition and related expenses (QTRE) rather than the amount billed to students. Prior to these changes, educational institutions were allowed to provide students with payments received (Box 1) and the amount billed (Box 2) for QTRE.
The problem was that individual filers accidentally misreported their college expenses when benefits like scholarships were involved. Unfortunately, many people filing were not subtracting any scholarship amount from the total amount billed, leading to inaccurate reporting of funds the university received.
Now, colleges and universities are no longer able to report amounts billed for QTRE in Box 2 on 1098-T forms. They must report payments in Box 1. The IRS is now enforcing reporting changes and as Box 2 is grayed out.
These changes mean universities must now redesign their system to start reporting via Box 1 only. Find out more on 1098 forms here.
Recommendations for completing the form
A lot of educational institutions have struggled with these changes due to in-house printing and reporting on legacy systems. To comply with IRS requirements, schools should know who qualifies for a 1098-T form and the criteria for QTRE fees. Here are three tips:
- Know who qualifies to receive a tax form. In general, individuals enrolled for any academic period and made a payment during the calendar year will receive a tax form. However, there are exceptions, such as students who entire QTRE were waived or paid for with a scholarship, or there is a formal billing arrangement with an employer or government entity.
- Understand QTREs versus personal expenses. Schools should also report tuition and fees required for enrollment as well as books and supply charges if it’s a requirement. Payments do not include personal expenses like room, board and travel, or anything involving sports, games and hobbies (unless it’s part of a degree program).
- Collect and report the correct Tax ID (TIN). Since institutions aren’t able to use the IRS TIN Matching System, universities need to find a way to obtain and double-check filings to see if TINs are accurate. Our TIN Checking service works seamlessly with our e‑filing system and will verify the tax ID and name combination before filing the forms.
Acing the next 1098-T
With an easy-to-use platform, you can outsource many of your electronic tax filing needs to our team. We help streamline processes and ensure accuracy with templates that are built to verify data and minimize errors. From completing the 1098-T tax form or TIN Checking, eFile360 will save you time and money by filing your information returns. Let’s get started!