Education and Scholarship/Grant Calculator

Items marked with a  ℹ  will display detailed information on the left.



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General Instructions

To receive any education credit:
  • The student must have a 1098T from the attended institution.
  • The taxpayer must have monies to pay for the expenses. This includes taxable and non-taxable income, gifts and/or student loans
In addition, a copy of the student’s account summary is required for accurate tax preparation. These statements are available on-line. Determine if the student received loans as well as Scholarship/Grants, or otherwise paid in their own money to the school. If so, the student determines which monies are used for which expenses.

Normally it is a tax advantage to use loans or own money for the qualifying expenses and then pay tax on the Scholarship/Grants that are then used for non-qualifying expenses.

The American Opportunity Credit (AOC) or Lifetime Learning Credit (LTL) Columns calculate both (a) the maximum allowable expenses for the credit. This also maximizes the taxable scholarship/grants. and (b) the minimum allowable expenses to enter for the credit. This also minimizes the taxable scholarship/grants. Determine which is better for the taxpayer and use that.

The Calculator also allows some of the Unrestricted Scholarship/Grants to be used for qualified expenses, which results in smaller credits and less taxable scholarship/grants. This is usually used only when (a) the Taxpayer is the student and wishes to reduce taxable income or (b) the student is a dependent and the taxable scholarship/grants trigger the Kiddie Tax (see Using Unrestricted Scholarship/Grants for Ed Expense for more information) .

Tuition and Fees Deduction

The Tuition and Fees Deduction is retroactive to TY2018 and TY2019. In general American Opportunity Credit and Lifetime Learning Credit are more advantageous. Use Tuition and Fees when encountering the following:
  • TP is not eligible for AOC and TP’s marginal tax rate is above 20%.
  • When there is a need to reduce TP’s AGI.
  • Use the amount in Tuition and Fees Line of the calculator.
  • OREGON: Use if TP not eligible for AOC and has 0 taxable income. [more information in LTL section.
OREGON INFORMATION: If taking Tuition and Fees on the federal return DO NOT use subtraction 308. on state return. Amount has already been subtracted from AGI.

American Opportunity Credit

The basic highlights of the American Opportunity Credit are:
  • Credit up to $2,500. 40% of which may be refundable. (See Information on Taxpayer under 24).
  • Available ONLY if the student had not completed the first 4 years of postsecondary education.
    • Completion of first 4 years. A student has completed the first 4 years of postsecondary education if the institution at which the student is enrolled awards the student 4 years of academic credit at that institution for coursework completed by the student before [the taxyear]. This student generally wouldn't be an eligible student for purposes of the American opportunity credit. [IRS 2018 Publication 970 page 18]
    • For example a student who is awarded their 4 years of academic credit by December 31, 2018 will not be eligible for AOC in TY2019 even if they have taken only 3 years of AOC.
  • Available ONLY for 4 tax years per eligible student.
  • Student must be pursuing a program leading to a degree or other recognized education credential.
  • Student must be enrolled at least half-time.
  • The student had not been convicted of a felony for possessing or distributing a controlled substance.
  • Includes books and materials.
  • Must provide educational institution's EIN
  • Cannot claim if filing Status is MFS

Lifetime Learning Credit

The basic highlights of the Lifetime Learning Credit are:
  • Credit up to $2,000. Credit limied to amount of tax owed.
  • Available for all years of postsecondary education and for courses to acquire or improve job skills
  • Available for an unlimited number of tax years.
  • Student does not need to be pursuing a program leading to a degree or other recognized education credential.
  • Available for one or more courses
  • Felony drug convictions do not make the student ineligible.
  • Does NOT include books and materials unless special conditions apply (See information on Tuition and Fees)
  • Cannot claim if filing Status is MFS
OREGON INFORMATION: Check to make sure that the TP used the LTL Credit on the federal return. If Taxable Income is zero, the LTL credit will have no effect since it is not refundable. If you use subtraction 308 on the Oregon return, the Oregon Department of Revenue may reject the subtraction because it sees no ed credit on the federal return. Instead use Tuition and Fees Deduction as this has the same effect of reducing taxable income. If you use Tuition and Fees Deduction DO NOT use the 308 subtraction on the state return.

Taxpayer is Under the Age of 24

Special rules for the American Opportunity Credit apply if the taxpayer is under the age of 24. The taxpayer may or may not be eligible for the refundable portion of the credit. Use this flow chart or the conditions following it to determine eligibility:


Special rules for the American Opportunity Credit. If the taxpayer is under the age of 24 and meets all of the following conditions, the taxpayer is not eligible for the refundable portion of the credit. The taxpayer is allowed to use the credit to reduce their tax as a nonrefundable credit only. The Taxpayer does not qualify for a refundable credit if items 1 (a, b, or c), 2, and 3 below apply.
  1. The Taxpayer is
    1. Under age 18 at the end of the Tax Year,
    2. Age 18 at the end of the Tax Year and the Taxpayer's earned income (defined below) was less than one-half of the Taxpayer's support (defined below),
    3. Over age 18 and under age 24 at the end of 2018 and a full-time student (defined below) and the Taxpayer's earned income (defined below) was less than one-half of the Taxpayer's support (defined below).
  2. At least one of the Taxpayer's parents was alive at the end of the Tax Year.
  3. the Taxpayer is filing a return as single, head of household, qualifying widow(er), or married filing separately for the Tax Year.
The following definitions are from IRS Publication 970 for Tax Year 2018:

Earned income. Earned income includes wages, salaries, professional fees, and other payments received for personal services actually performed. Earned income includes the part of any scholarship or fellowship grant that represents payment for teaching, research, or other services performed by the student that are required as a condition for receiving the scholarship or fellowship grant.

Support. The Taxpayer's support includes food, shelter, clothing, medical and dental care, education, and the like. Generally, the amount of the item of support will be the amount of expenses incurred by the one furnishing such item. If the item of support is in the form of property or lodging, measure the amount of such item of support by its fair market value. However, a scholarship received by the Taxpayer isn't considered support if the Taxpayer is a full-time student. See Pub. 501 for details.

Full-time student. The Taxpayer is a full-time student for the Tax Year if during any part of any 5 calendar months during the year the Taxpayer was enrolled as a full-time student at an eligible educational institution (defined earlier), or took a full-time, on-farm training course given by such an institution or by a state, county, or local government agency.

*** Maybe only appear when checked YES?

Student is a Dependent

If the student is a dependent:
  • The Education Credit goes to the Taxpayer
  • The Taxable portion of the Scholarship/Grant is income for the Student.
  • Under certain conditions the Scholarship/Grant may trigger the Kiddie Tax for the Student
Enter Taxpayer Monies here

Gifts and Student Loans are entered elsewhere.

Taxpayer Money Information

In order to take an education credit, the Taxpayer must have available monies to pay for the qualified expenses. These fall into three broad categories:
  • Taxpayer Monies:these include taxable and non-taxable income, non-student loans, withdrawals from savings, etc.
    It does not include scholarship/grant money.
  • Gifts deposited with the school or spent on qualified expenses
  • Student Loans
These are entered in three different places on the form.
Enter Gifts deposited with the school or spent on qualified expense here

Taxpayer Monies and Student Loans are entered elsewhere.

Taxpayer Money Information

In order to take an education credit, the Taxpayer must have available monies to pay for the qualified expenses. These fall into three broad categories:
  • Taxpayer Monies:these include taxable and non-taxable income, non-student loans, withdrawals from savings, etc.
    It does not include scholarship/grant money.
  • Gifts deposited with the school or spent on qualified expenses
  • Student Loans
These are entered in three different places on the form.
Enter Student Loans here

Taxpayer Monies and Gifts are entered elsewhere.

Taxpayer Money Information

In order to take an education credit, the Taxpayer must have available monies to pay for the qualified expenses. These fall into three broad categories:
  • Taxpayer Monies:these include taxable and non-taxable income, non-student loans, withdrawals from savings, etc.
    It does not include scholarship/grant money.
  • Gifts deposited with the school or spent on qualified expenses
  • Student Loans
These are entered in three different places on the form.

Qualified Education Expenses.

For purposes of tax-free scholarships and fellowship grants, these are expenses for:
  • Tuition and fees required to enroll at or attend an eligible educational institution;
  • Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution.
These items must be required of all students in your course of instruction.

Expenses that don't qualify.

Qualified education expenses DO NOT include the cost of:
  • Room and board,
  • Travel/Transfportation Fees,
  • Research,
  • Clerical help, or
  • Equipment and other expenses that aren't required for enrollment in or attendance at an eligible educational institution.
  • Insurance,
  • Medical expenses (including student health fees)
  • Similar personal, living, or family expenses.

    • This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Tuition and Fees

Include All qualified expenses that are eligible for both American Opportunity Credit and Life Time Learning Credit
  • Tuition and fees required to enroll at or to attend an eligible educational institution;
  • Related fees such as: Student activity fees that are required for the courses at the eligible educational institution.
  • Course-related books, supplies, and equipment only if the fees and expenses:
    • Are required of all students
    • Is required to be paid to the institution
  • Expenses and Fees must be required of all students enrolled in the course
These items must be required of all students in your course of instruction.

NOTE:The college bookstore is usually not the actual University, it's a coop for the students.

Example A kit that a beauty school requires of all students and that can only be purchased at the beauty school at the time of enrollment when paying tuition to the institution would be an example of supplies qualifying under tuition and fees.

Do Not Include:

  • Fees that are not required of all students
  • Fees for personal, living or family use such as athletic fees, health fees, etc.
  • Qualified books or materials that can be purchased through a third-party or that are not required. These are entered on the Qualified Books or Qualifed Materials lines.
  • Any items that are excluded from the Life Time Learning Credit.
      This is true even if the amount must be paid to the institution as a condition of enrollment or attendance.

Qualified Books

Expenses for books, supplies, and equipment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Do not include items that are included the Tuition and Fees Line.

Qualified Materials

Expenses for books, supplies, and equip-ment needed for a course of study are included in qualified education expenses whether or not the materials are purchased from the educational institution. Do not include items that are included the Tuition and Fees Line.

Restricted Scholarship/Grants

Restricted Scholarship/Grants can only be used for qualified expenses. They cannot be used for other related expenses, such as room and board, travel, etc.

Restricted scholarships/grants may come from an organization, such as a local bank, rotary, or high school athletic booster group. The scholarships/grants may only be used as stated by the granting organization. The student is responsible for researching and clarifying any restrictions. The default position is that the scholarship/grant is restricted if the student can't verify that the scholarship/grant is unrestricted.

Unrestricted Scholarship/Grants

Unrestricted Scholarship/Grants can be used for non-qualified expenses.

Unrestricted scholarships/grants may be from a government needs-based program such as Pell grants and/or Oregon Opportunity Grants. Some private scholarships such as the Ford Foundation Grants are also unrestricted.

The fact that the educational institution applies the scholarship or fellowship grant to qualified education expenses, such as tuition and related fees, doesn't prevent the student from choosing to apply certain scholarships or fellowship Scholarship/Grants to the student’s actual non-qualified expenses. By making this choice (that is, by including the part of the scholarship or fellowship grant applied to the student’s non-qualified expenses in income), the student may increase taxable income and may be required to file a tax return. But this allows payments made in cash, by check, by credit or debit card, or with borrowed funds such as a student loan to be applied to qualified education expenses. [IRS 2018 Publication 970 p16 col 2]

Maximum Ed Credit

This line shows the Maximum Education Credit that is available for both the American Opportunity Credit and the Lifetime Learning Credit. It also results in the maximum taxable scholarship for the student.

The calculator allows unrestricted scholarship monies to be applied to qualified education expenses. This might be desirable in the case where:
  1. the Student is a Dependent and the taxable income triggers the Kiddie Tax or
  2. the Taxpayer/Spouse is the Student and the taxpayer wishes to reduce scholarship income, e.g., EIC.

Minimum Scholarship/Grants

This line shows the Minimum Education Credit that is available for both the American Opportunity Credit and the Lifetime Learning Credit. It also results in the minimum taxable scholarship for the student.

This is desirable if the Taxpayer is taking the Lifetime Learning Credit and the marginal tax rate is over 20%. The Lifetime Learning Credit is 20% of the qualified expenses up to $2,000.

Using Unrestricted Scholarship/Grants for Ed Expenses

In some cases the taxpayer may find it advantageous to use some of the unrestricted Scholarship/Grants for education expenses.
Two of the most common are:
  • When reducing income will increase other tax credits, e.g., EIC
  • When the Kiddie Tax (Form 8615) is triggered. (This is rare. See below.)
    Note: The Kiddie Tax is Out of Scope for Tax Years prior to 2018.

TIP: What to Enter to Reduce Scholarships by a fixed amount
  • Rules: These differ by credit type: AOC or LTL
    • AOC: To reduce taxable scholarship money by a fixed amount for AOC enter the amount you want to reduce the scholarship by plus the amount in box "H" of the AOC column at the bottom of the calculation table.
    • LTL: To reduce taxable scholarship money by a fixed amount for LTL enter the amount you want to reduce the scholarship by plus the amount in box "H" at the bottom of the calculation table less the total of books and materials .
  • Example: Assume TP income is $60,000, Tuition $12,000, Books $1,250 and an unrestricted Scholarship of $12,000.
    The maximum ed credit for AOC will be $4,000 with a taxable scholarship of $2,750. Box "H" is $9,250.
    The maximum ed credit for LTL will be $10,000 with a taxable scholarship of $8,750. Box "H" is $3,250.
    • AOC: If you want to reduce the taxable scholarship income by $1,000, you use $10,250 ($1,000 + $9,250) of the unrestricted scholarship for qualifying expenses in the AOC column.
    • LTL: If you want to reduce the taxable scholarship income by $1,000, you use $3,000 ($1,000 + $3,250 - $1,250) of the unrestricted scholarship for qualifying expenses in the LTL column.
  • Thanks to Jim Blackburn for identifying this methodology.

Kiddie Tax -- Applies only if the Student is a dependent of the taxpayer.

When calculating Education Credits, the Kiddie Tax may be triggered when ALL of the following criteria are met:
  1. Taxable Scholarship/Grants plus other unearned income exceed $2,100(TY2018), $2,200(TY2019)..
  2. The dependent is required to file a tax return.
    This is usually when the students AGI exceeds $12,000(TY2018), $12,200(TY2019).
    Note:Taxable Scholarship/Grants are considered earned income for the purpose of determining if a dependent must file a tax return and for calculating the standard deduction for dependents. Taxable scholarships and fellowship grants not reported on Form W-2 are considered to be unearned income for the purpose of calculating kiddie tax.[See Pub 4012 Tab A Chart B].
  3. One of the following is true
    1. The Student is younger than 18
    2. The Student is 18 and their earned income (W-2 and Schedule C) is less than 1/2 of their support
    3. The Student is between 19 and 23 at the end of the tax year, is a full-time student, and their earned income (W-2 and Schedule C) is less than 1/2 of their support
  4. One of the students parent is alive at the end of the tax year.
  5. The Student does not file a joint return for the tax year.
*** Add Information

Reducing Taxpayer Income -- Only applies if Student is the Taxpayer or Taxpayer's Spouse

*** Add Information

Taxpayer Information
Taxpayer's Name   Is Taxpayer Under Age 24?  ℹ  Yes No
Student's Name   Is Student a Dependent?  ℹ  Yes No
Tax Year       2016 2017 2018 2019
Tax Payer's monies  ℹ 
Gifts Deposited with school or spent on qualifed expenses ℹ 

Education Data
Term Winter Spring Summer Fall Total
Qualified Education Expenses  ℹ 
Tuition & Fees  ℹ 
Books  ℹ 
Materials< ℹ 
Scholarship/Grants and Other Qualified Distributions
Restricted Scholarship/Grants ℹ 
Unrestricted Scholarship/Grants ℹ 
Sources of Income
Student Loans ℹ 

Enter Data for either AOC or LTL Into TSO from one of the lines below
American Opportunity Credit Lifetime Learning Credit
TP's Qualifying Education Expenses Form 8863 Student's Taxable 1040 Scholarship/Grant Income TP's Qualifying Education Expenses Form 8863 Student's Taxable 1040 Scholarship/Grant Income
Maximize Ed Credit ℹ  0 0 0 0
OR
Minimize Taxable Scholarship/Grant ℹ  0 0 0 0

Calculation of Taxpayers's Form 8863 Education Credit
Use Some Unrestricted Scholarship/Grant for qualified Expenses ℹ  Maximize
Education Credit Detail
Minimize
Taxable Scholarship/Grant
Amer. Opportunity Credit Lifetime Learning Credit AOC LTL
Tuition and Fees
Books + + N/A
Course Materials + + N/A
Total Qualifying Expenses = A = A
Scholarship/Grants restricted to qual. exp. - B1 - B1
Unrestricted Scholarship/Grants used for qual. exp. ℹ  - B2 - B2
Exp. less restricted Scholarship/Grants (A-B) = C = C
TP's money + gifts deposited w/
school or spent on qual. ed. exp.
Student Loans + +
Total TP's money = D = D
Limit on expense for the credit E 4000 E 10000 4000 10000
Expenses to claim for Education
Credit F=(smallest of C, D or E)
= Form 8863 = Form 8863

Calculation of Student's 1040 Scholarship/Grant Income

Amer. Opportunity Credit Lifetime Learning Credit AOC LTL
Excess Restricted Scholarship/Grants not used for ed exp. G1 G1
Unrestricted Scholarship/Grants not used for ed exp. + G2 + G2
Less exp. not used for Ed. Cr or
paid by restricted Scholarship/Grants (C-F)
- H - H (Books & Materials)
Taxable Scholarship/Grants
(G-H) (not less than zero)
= 1040 Income = 1040 Income

Information: If you have comments or bugs on the calculator, please email them to joe.bowman.ta@mindspring.com . .