1098-T Adjustments Made for a Prior Year: What You Need to Know
Understand how prior-year 1098-T adjustments can impact your taxes, what records to keep, and how to report changes accurately.
If you’ve received a corrected Form 1098-T for a prior year, it indicates a change to the tuition expense or scholarship information your educational institution previously reported.1Internal Revenue Service. Form 1098-T, Tuition Statement This form details qualified tuition and related expenses, potentially affecting education tax credits or deductions you claimed. Understanding these adjustments is necessary, as they might require you to revisit past tax filings.
Even minor changes on a corrected 1098-T can alter your tax refund, liability, or eligibility for education benefits claimed on returns already filed.
Reasons for Adjustments
Educational institutions issue corrected 1098-T forms when information reported for a previous year needs modification, often due to changes occurring after the original form was sent. The updated form will typically have the “Corrected” box checked.
Adjustments frequently relate to qualified tuition and related expenses. Box 4 on the form, “Adjustments made for a prior year,” reflects reductions in these expenses reported previously.2Internal Revenue Service. Instructions for Forms 1098-E and 1098-T For example, if a student paid tuition in December for the spring semester but dropped a course in January, receiving a partial refund related to the prior year’s payment, this reduction would appear in Box 4 of the 1098-T issued for the year the adjustment occurred.
Changes can also involve scholarships or grants. Box 6, “Adjustments to scholarships or grants for a prior year,” shows reductions in aid amounts reported on a prior year’s form. This might happen if a student’s grant eligibility changed after the initial reporting.
Administrative errors, such as incorrect amounts or taxpayer identification numbers, can also lead to a corrected 1098-T. Institutions aim for accuracy in reporting financial details to both the student and the IRS.
Potential Effects on Your Tax Filings
A corrected Form 1098-T can directly affect your past tax filings because this information is used to calculate education benefits, primarily the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). These credits reduce tax liability based on qualified tuition paid, minus certain financial aid. According to IRS Publication 970, Tax Benefits for Education, these credits are calculated using Form 8863, Education Credits. If the corrected 1098-T changes the figures originally used, the credit you claimed might be incorrect.
Adjustments in Box 4 generally show a reduction in previously reported qualified tuition expenses, perhaps due to a refund. This lowers the expenses eligible for the AOTC or LLC for that prior year, potentially making the credit amount you claimed too high.
Adjustments in Box 6 show reductions in previously reported scholarships or grants. A decrease in tax-free aid effectively increases your net qualified expenses (out-of-pocket costs) for that prior year. This could make you eligible for a larger education credit than originally claimed.
When a corrected 1098-T indicates an inaccurate education credit was claimed previously, you generally need to amend that year’s tax return. This involves recalculating the credit using the updated figures and Form 8863 for the specific tax year.
To report the change, file Form 1040-X, Amended U.S. Individual Income Tax Return, for the affected prior year. On this form, you report the original figures, the corrected figures, and the difference, explaining the reason in Part III by referencing the corrected 1098-T.
If the recalculation results in a lower credit, you will likely owe additional tax plus interest, calculated from the original return’s due date.3Internal Revenue Service. Interest If the correction leads to a larger credit, filing the amended return could result in a tax refund, potentially including interest paid by the IRS.
Documentation Needed
When handling a corrected Form 1098-T, gather key documents before deciding if amending a past return is necessary. The primary document is the corrected Form 1098-T itself, marked “Corrected.”
You should also locate the original Form 1098-T for that same tax year. Comparing the original and corrected versions highlights the specific changes (e.g., Box 1 payments, Box 4 adjustments, Box 5 scholarships, Box 6 adjustments) and helps clarify the reason for the correction.
Your personal financial records are also needed to substantiate the expenses paid during the prior year. Keep receipts for tuition and required fees, bank statements showing payments, or cancelled checks. Also retain records of scholarships, grants, or other aid received, as these affect the net qualified expenses calculation detailed in IRS Publication 970.
Finally, have a copy of the original tax return filed for the affected year (Form 1040 or 1040-SR). This shows the figures initially reported, providing context for the changes. These documents are needed to accurately complete Form 1040-X if an amendment is required. The IRS generally recommends keeping tax records for at least three years.
Steps to Report Changes
Receiving a corrected Form 1098-T requires comparing the updated figures with the information used on your original tax return for that year. Note any changes, particularly in Box 4 (tuition adjustments) or Box 6 (scholarship/grant adjustments).
If these changes affect the education credits you claimed (AOTC or LLC), recalculate the credit for the prior year using the corrected figures and the appropriate year’s Form 8863, following IRS guidance.
If the recalculated credit differs from the amount originally claimed, you generally must report this by filing Form 1040-X for the specific prior year. Complete the form showing the original figures, the net change, and the corrected figures, including any change in tax liability.
In Part III of Form 1040-X, explain that you received a corrected Form 1098-T and how the adjustments affected your education credit and tax. Attaching a copy of the corrected form is optional but can be helpful.
Determine if the changes result in additional tax owed or a refund. If you owe more tax, interest will apply from the original due date. If you are due a refund, the IRS may include interest.
File the completed Form 1040-X. For recent tax years, electronic filing may be available through tax software. Otherwise, mail the paper form to the address specified in the instructions. Generally, you must file within three years from the date you filed the original return or two years from the date you paid the tax, whichever is later.4Internal Revenue Service. Instructions for Form 1040-X, Amended U.S. Individual Income Tax Return Processing can take several weeks or months.
Common Mistakes to Avoid
Handling a corrected Form 1098-T requires care to avoid common errors. One oversight is ignoring the corrected form altogether. Since it officially amends information sent to the IRS, disregarding it may leave your prior year’s return inaccurate.
Misinterpreting the figures in Box 4 (Adjustments made for a prior year) and Box 6 (Adjustments to scholarships or grants for a prior year) is another potential issue. Box 4 usually reflects a reduction in qualified expenses, potentially decreasing your prior-year credit. Box 6 shows a reduction in aid, which might increase your net expenses and potentially increase your credit. Confusing these impacts can lead to incorrect conclusions.
Failing to recalculate the specific education credit using the corrected figures is also an error. You must determine the precise effect on the credit calculation using Form 8863 and relevant tax rules. The change in your tax liability isn’t simply the adjustment amount itself.
Applying the prior-year adjustments to the current tax year’s return is incorrect. The adjustments pertain to the specific prior tax year mentioned or implied by the correction, and the impact must be assessed against that year’s return.
Assuming small adjustments are insignificant can also be a mistake. Minor changes can still affect credit eligibility or amount, especially considering income limitations outlined in IRS Publication 970. Review every corrected form to confirm if action is needed.