What Are Box 1 Payments for Tuition & Related Expenses?

Each year, educational institutions issue Form 1098-T, Tuition Statement, to students and their families. This form is filed with the IRS and reports financial data about a student’s education. The figure in Box 1 shows the total payments an institution received for qualified tuition and related expenses during the calendar year. This amount is a starting point for claiming education tax benefits, and while the form is not attached to your tax return, its information is needed for preparation.

Understanding the Box 1 Amount

The Box 1 amount reflects payments an institution received for a student’s qualified expenses between January 1 and December 31. This “payments received” method means the timing of the payment determines the tax year it is reported in. For instance, a payment made in December for the spring semester is included in the Box 1 amount for the year the payment was made, not the year the semester starts.

Since 2018, institutions must report payments received, which is a distinction from the amount they may have billed. This provides a clearer reflection of cash paid within a specific tax year. Box 4 of the 1098-T will show any adjustments made for a prior year, such as a refund for a class you paid for and later dropped.

Identifying Qualified Expenses

The IRS defines “qualified tuition and related expenses” as fees required for enrollment or attendance at an eligible educational institution. This includes tuition and mandatory student activity or health fees. Costs for room and board, transportation, and other personal living expenses are not considered qualified expenses.

The definition of qualified expenses differs depending on the tax credit. For the Lifetime Learning Credit (LLC), qualified expenses are limited to tuition and fees required for enrollment. For the American Opportunity Tax Credit (AOTC), the definition is broader and also includes course materials like books, supplies, and equipment, even if not purchased from the school.

Reconciling Box 1 with Your Payment Records

The amount in Box 1 may not match your personal payment records because it includes payments from all sources. This reflects funds from scholarships, grants, and payments made by other family members on the student’s behalf.

To verify the Box 1 amount, you should gather your own financial records for the year, such as bank statements, credit card statements, and records of 529 plan distributions. Remember to account for the timing of payments, especially those made at the end of one year for an academic period starting in the next.

Using Box 1 to Claim Education Credits

The Box 1 amount is a starting point for calculating education tax credits on Form 8863, but it is not the final number used on your tax return. The amount you can claim may be lower than the Box 1 figure after you subtract any tax-free educational assistance, such as scholarships and grants shown in Box 5. Your final claimable amount is based on the net qualified expenses you paid out-of-pocket or with loan proceeds.

The two primary tax benefits available are the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The LLC is broadly available for undergraduate, graduate, and professional degree courses. The AOTC has stricter rules: the student must not have completed the first four years of higher education, must not have a felony drug conviction, must be pursuing a degree, and be enrolled at least half-time for one academic period.